Bohai Pharmaceuticals Group, Inc. - FORM S-1/A - August 11, 2010

Attached files

As
filed with the Securities and Exchange Commission on August 12, 2010

Registration
No. 333-165149

UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549

FORM
S-1/A

(Amendment
No. 5)

REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933

Bohai
Pharmaceuticals Group, Inc.

(Exact
name of registrant as specified in its charter)

Nevada

2834

98-0588402

(State
or other jurisdiction of

incorporation
or organization)

(Primary
Standard Industrial

Classification
Code Number)

(I.R.S.
Employer

Identification
No.)

c/o
Yantai Bohai Pharmaceuticals Group Co. Ltd.

No.
9 Daxin Road, Zhifu District

Yantai,
Shandong Province, China 264000

+86
(535)-685-7928

(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)

Mr.
Hongwei Qu

President
and Chief Executive Officer

Bohai
Pharmaceuticals Group, Inc.

c/o
Yantai Bohai Pharmaceuticals Group Co. Ltd.

No.
9 Daxin Road, Zhifu District

Yantai,
Shandong Province, China 264000

+86
(535)-685-7928

(Name,
address including zip code, and telephone number, including area code, of agent
for service)

Copies
to:

Barry
I. Grossman, Esq.

Lawrence
A. Rosenbloom, Esq.

Ellenoff
Grossman & Schole LLP

150
East 42nd Street, 11th Floor

New
York, NY 10017

212-370-1300

212-370-7889
(fax)

Registrant’s
telephone number: +86 (535)-685-7928

APPROXIMATE
DATE OF PROPOSED SALE TO PUBLIC: From time to time after this

Registration
Statement becomes effective.

If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: ¨

If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the oearlier effective
registration statement for the same offering.

If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective oregistration statement
for the same offering.

If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective oregistration statement
for the same offering.

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Pursuant
to Rule 416 of the Securities Act of 1933, also registered hereby are such
additional and indeterminable number of shares as may be issuable due to
adjustments for changes resulting from stock dividends, stock splits and
similar changes as well as anti-dilution provisions applicable to the
notes and warrants.

(2)

Estimated
pursuant to Rule 457(f)(2) under the Securities Act of 1933 solely for the
purpose of calculating the amount of the registration fee, based on the
book value of such securities received by the Company in the Share
Exchange.

(3)

The
6,000,000 shares of common stock are being registered for resale by
certain selling stockholders named in this registration statement, which
shares are issuable by the registrant upon the conversion of the principal
amount of the registrant’s 8% Convertible Notes due January 5, 2012.

(4)

The
690,000 shares of common stock are being registered for resale by certain
selling stockholders named in this registration statement, which shares
are potentially issuable by the registrant upon the conversion of the
interest accrued under the registrant’s 8% Convertible Notes due January
5, 2012.

(5)

The
6,000,000 shares of common stock are being registered for resale by
certain selling stockholders named in this registration statement, which
shares are issuable by the registrant upon the exercise of the
registrant’s common stock purchase warrants issued on January 5, 2010.

(6)

The
600,000 shares of common stock are being registered for resale by certain
selling stockholders named in this registration statement, which shares
are issuable by the registrant upon the exercise of the placement agent
warrants issued on January 5, 2010.

The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a) may determine.

The
information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission (“SEC”) is effective. This
prospectus is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.

Preliminary
Prospectus

Subject
to Completion, dated August 12, 2010

20,322,529
Shares of

Common
Stock

This
prospectus relates to the sale of up to a total of 20,322,529 shares of common
stock of Bohai Pharmaceuticals Group, Inc., a Nevada corporation, that may be
sold from time to time by the selling stockholders named in this prospectus and
their successors and assigns. The shares of common stock subject to
this prospectus include: (i) 5,482,529 shares of common stock issued in
connection with our January 5, 2010 share exchange transaction and 1,550,000
other shares of restricted common stock; (ii) 6,690,000 shares issuable upon
conversion by certain selling stockholders of the principal and interest
underlying our 8% Convertible Notes due January 5, 2012, which we refer to
herein as the Notes; (iii) 6,000,000 shares issuable upon the exercise by
certain selling stockholders of our common stock purchase warrants issued on
January 5, 2010, which we refer to herein as the Warrants; and (iv) 600,000
shares upon issuable upon the exercise by certain selling stockholders of
placement agents’ warrants issued on January 5, 2010, which we refer to herein
as the Placement Agent Warrants. The securities offered for resale
hereby were issued to the applicable selling stockholders in private placement
or other exempt transactions completed prior to the filing of the registration
statement of which this prospectus is a part.

The
selling stockholders may sell all or a portion of their shares through public or
private transactions at prevailing market prices or at privately negotiated
prices. Information regarding the selling stockholders and the times
and manner in which they may offer and sell the shares under this prospectus is
provided under “Selling Stockholders” and “Plan of Distribution” in this
prospectus. We have agreed to pay all the costs and expenses of this
registration.

We will
not receive any of the proceeds from the sale of shares by the selling
stockholders. We may receive proceeds upon exercise of Warrants or
the Placement Agent Warrants, and any proceeds we receive will be used for
general corporate purposes and for working capital.

Our
common stock is listed for quotation on the Over-the-Counter Bulletin Board, or
OTCBB, under the symbol “BOPH”. There is very limited trading in our
common stock. On July 23, 2010, the most recent day that our stock
traded, the last reported price per share of our common stock was
$2.25. You are urged to obtain current market quotations of our
common stock before purchasing any of the shares being offered for sale pursuant
to this prospectus.

An
investment in our securities is highly speculative, involves a high degree of
risk and should be considered only by persons who can afford the loss of their
entire investment. See “Risk Factors” beginning on page 6 of this
prospectus.

Neither
the SEC nor any state securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.

The date of this
prospectus is
[],
2010.

TABLE
OF CONTENTS

Page

Number

About
This Prospectus

-i-

Prospectus
Summary

1

Risk
Factors

6

Cautionary
Note Regarding Forward-Looking Statements

30

Use
of Proceeds

31

Determination
of Offering Price

31

Management’s
Discussion and Analysis of Financial Conditions and Results of Operations

32

Business

42

Management

59

Executive
Compensation

62

Certain
Relationships and Related Transactions

63

Security
Ownership of Certain Beneficial Owners and Management

65

Description
of Securities

66

Selling
Stockholders

68

Plan
of Distribution

76

Market
for Common Equity and Related Stockholder Matters

79

Legal
Matters

79

Experts

79

Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure

80

Where
You Can Find More Information

80

Index
to Financial Statements

F-1

ABOUT
THIS PROSPECTUS

This
prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information provided in this
prospectus and incorporated by reference in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in or incorporated by reference into this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the common stock offered by this
prospectus. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any common stock in any circumstances in which
such offer or solicitation is unlawful. The selling stockholders are
offering to sell, and seeking offers to buy, shares of common stock only in
jurisdictions where offers and sales are permitted.

Neither
the delivery of this prospectus nor any sale made in connection with this
prospectus shall, under any circumstances, create any implication that there has
been no change in our affairs since the date of this prospectus or that the
information contained by reference to this prospectus is correct as of any time
after its date. The information in this prospectus is accurate only
as of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. The rules of the SEC may
require us to update this prospectus in the future.

-i-

PROSPECTUS
SUMMARY

The
following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you
should consider before investing in the securities. Before making an
investment decision, you should read the entire prospectus carefully, including
the information set forth under the headings “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and
the financial statements and the notes to the financial statements included in
this prospectus.

As
used throughout this prospectus, the terms “BOPH”, “Company”, “we,” “us,” or
“our” refer to Bohai Pharmaceuticals Group, Inc., a Nevada corporation, together
with: (i) its wholly owned subsidiary, Chance High International Limited, a
British Virgin Islands company (“Chance High”); (ii) its indirect wholly foreign
owned subsidiary, Yantai Shencaojishi Pharmaceuticals Co., Ltd., a PRC company
(“WFOE”), and the WFOE’s variable interest entity, Yantai Bohai Pharmaceuticals
Group Co., Ltd., a PRC company (“Bohai”). In this prospectus, we
sometimes refer to BOPH, Chance High, WFOE and Bohai collectively as the
“Group.”

As
used in this prospectus, “China” or “the PRC” refers to the People’s Republic of
China.

Our
Company

We are
engaged in the production, manufacturing and distribution in China of herbal
pharmaceuticals based on traditional Chinese medicine, which we refer to herein
as Traditional Chinese Medicine or TCM. We are based in the city of
Yantai, Shandong Province, China and our operations are exclusively in
China.

Our
medicines address rheumatoid arthritis, viral infections, gynecological
diseases, cardio vascular issues and respiratory diseases. We
obtained Drug Approval Numbers for 29 varieties of traditional Chinese herbal
medicines in 2004 and currently produce 10 varieties of approved traditional
Chinese herbal medicines in seven delivery systems: tablets, granules, capsules,
syrup, concentrated powder, tincture and medicinal wine. Of these 10
products, 5 are prescription drugs and 5 are over the counter, or OTC,
products. In a significant development, on December 1, 2009, two of
our lead products, Tongbi Capsules and Tablets and Lung Nourishing Cream, became
eligible for reimbursement under China’s National Medical Insurance Program.

Background
and Key Events

We were
incorporated under the laws of the State of Nevada under the name Link Resources
Inc. on January 9, 2008. Our principal office was in Calgary,
Alberta, Canada. Prior to January 5, 2010, we were a public “shell”
company in the exploration stage since our formation and had not yet realized
any revenues. We entered into a Mineral Lease Agreement on April 1,
2008 for two mining claims in Pershing County, Nevada, in an area known as the
Goldbanks East Prospect. We terminated the lease on July 7,
2009.

Share
Exchange with Chance High

Pursuant
to the Share Exchange Agreement entered into on January 5, 2010 (the “Share
Exchange Agreement”), and related share exchange (the “Share Exchange”) by and
among us, Chance High, and the shareholders of Chance High (the “Chance High
Shareholders”), we acquired Chance High and its indirect, controlled subsidiary
Bohai, a Chinese company engaged the production, manufacturing and distribution
in China of herbal medicines, including capsules and other products, based on
Traditional Chinese Medicine. The closing of the Share Exchange (the
“Closing”) took place on January 5, 2010. As of the Closing, pursuant
to the terms of the Share Exchange Agreement, we acquired all of the outstanding
equity securities (the “Chance High Shares”) of Chance High from the Chance High
Shareholders, and the Chance High Shareholders transferred and contributed all
of their Chance High Shares to us. In exchange, we issued to Chance
High Shareholders an aggregate of 13,162,500 newly issued shares of our common
stock. Certain of the Chance High Shareholders are selling
stockholders hereunder.

1

In
addition, pursuant to the terms of the Share Exchange Agreement, Anthony
Zaradic, our former sole officer and director (“Zaradic”), cancelled a total of
1,500,000 shares of common stock owned by him. As a further condition
of the Share Exchange, effective as of January 5, 2010, Zaradic resigned from
all of his positions with our company and Hongwei Qu (“Qu”), the former
principal stockholder and Executive Director of Bohai, was appointed as our
President, Chief Executive Officer, Interim Chief Financial Officer, Treasurer
and Secretary and also, effective January 16, 2010, as our sole
director. In June 2010, Mr. Qu relinquished the positions of Interim
Chief Financial Officer, Treasurer and Secretary and we appointed Gene Hsiao as
our Chief Financial Officer. On July 12, 2010, we appointed three
independent directors to our board of directors.

January
5, 2010 Private Placement and Related Agreements

Securities Purchase
Agreement. On January 5, 2010, we entered into a Securities
Purchase Agreement (the “Securities Purchase Agreement”) with certain accredited
investors, who are selling stockholders hereunder (the “Investors”) and Euro
Pacific Capital, Inc. (“Euro Pacific”), as representative of the Investors,
relating to a private placement by us of 6,000,000 units consisting of Notes and
Warrants, which we refer to herein as the private placement. The
consummation of the private placement resulted in gross proceeds to us of
$12,000,000 and net proceeds of approximately $9,700,000. Each unit
consisted of a $2.00 principal amount, two year convertible Note and a three
year Warrant to purchase one share of our common stock at $2.40 per share,
subject to certain conditions. Euro Pacific acted as the lead
placement agent and Chardan Capital Markets, LLC acted as co-placement agent of
the private placement.

Registration Rights
Agreement. In connection with the private placement, we
entered into Registration Rights Agreement (the “Registration Rights Agreement”)
with the Investors which sets forth the rights of the Investors to have the
shares of common stock underlying the Notes and Warrants issued in the private
placement registered with the Securities and Exchange Commission (“SEC”) for
public resale. The filing of the registration statement of which this
prospectus is a part is intended to satisfy certain of our obligations the
Registration Rights Agreement.

Securities Escrow
Agreement. Also in connection with the private placement, we
entered into a Securities Escrow Agreement (the “Securities Escrow Agreement”)
with Euro Pacific, as representative of the Investors, our principal
stockholder, Glory Period Limited, a British Virgin Islands company that we
refer to herein as Glory Period and which was the majority shareholder of Chance
High prior to the Share Exchange, and Escrow, LLC, as escrow agent (the “Escrow
Agent”). Pursuant to the Securities Escrow Agreement, Glory Period
has pledged and deposited a stock certificate representing 1 million shares of
our common stock (the “Escrow Shares”) into escrow in order to provide security
to the Investors in the event of an occurrence of an event of default under the
Notes. Upon the earlier to occur of the full repayment of all amounts
due to the Investors under the Notes or the conversion of fifty percent of the
principal face value of Notes into shares of common stock, the Investors’ rights
in and to the Escrow Shares shall terminate. Glory Period is
controlled by Qu through certain contractual relationships described elsewhere
in this prospectus.

2

Closing Escrow Agreement.
Pursuant to a Closing Escrow Agreement (the “Closing Escrow Agreement”)
that we entered into in connection with the private placement on December 10,
2009, we placed a total of $240,000 of proceeds from the private placement (the
“Holdback Amount”) with the Escrow Agent. The Holdback Amount
represents an amount sufficient to satisfy the payment to the Investors of one
quarterly interest payment due on the aggregate principal amount of all Notes
issued in the private placement. If, subject to certain conditions
and after applicable notice and cure periods, an event of default is declared by
Euro Pacific with respect to our failure to make a quarterly interest payment to
Investors, the Escrow Agent shall disburse such portion of the Holdback Amount
to the Investors, and we shall be obligated to deposit additional amounts equal
to the Holdback Amount with Escrow Agent. At such time as
seventy-five percent of the aggregate shares of common stock underlying the
Notes have been issued upon conversion of the Notes, all remaining funds of the
Holdback Amount shall promptly be disbursed to us.

Corporate
Name Change

On January 29, 2010, we entered into an
Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which we
merged with a newly formed, wholly owned subsidiary called Bohai Pharmaceuticals
Group, Inc., a Nevada corporation (“Merger Sub” and such merger transaction, the
“Merger”). Upon the consummation of the Merger, the separate
existence of Merger Sub ceased and our stockholders became stockholders of the
surviving company named Bohai Pharmaceuticals Group, Inc. As
permitted by Chapter 92A.180 of Nevada Revised Statutes, the sole purpose of the
Merger was to effect a change of our corporate name.

Change
of Our Independent Registered Accounting Firm

Effective
January 29, 2010, upon the approval of our board of directors, we dismissed John
Kinross-Kennedy as our independent registered public accountant and appointed
Parker Randall CF (H.K.) CPA Limited as our independent registered public
accounting firm

Corporate
Structure and Related Agreements

Our post
Share Exchange organization structure is summarized below:

3

Chance
High owns 100% of the issued and outstanding capital stock of the
WFOE. On December 7, 2009, the WFOE entered into a series of variable
interest entity contractual agreements (the “VIE Agreements”) with Bohai and its
three shareholders, which include Qu (our Chairman, President and Chief
Executive Officer, who owns 90% of Bohai’s shares) and two unaffiliated
parties. Pursuant to the VIE Agreements, WFOE does not directly own
the equity of our operating subsidiary, but rather effectively assumed
management of the business activities of Bohai and has the right to appoint all
executives and senior management and the members of the board of directors of
Bohai. The VIE Agreements are comprised of a series of agreements,
including a Consulting Services Agreement, Operating Agreement and Proxy
Agreement, through which WFOE has the right to advise, consult, manage and
operate Bohai for an annual fee in the amount of Bohai’s yearly net profits
after tax. Additionally, Bohai’s shareholders have pledged their
rights, titles and equity interest in Bohai as security for WFOE to collect
consulting and services fees provided to Bohai through an Equity Pledge
Agreement. In order to further reinforce WFOE’s rights to control and
operate Bohai, Bohai’s shareholders granted WFOE an exclusive right and option
to acquire all of their equity interests in Bohai through an Option
Agreement.

In
addition, on December 7, 2009, Mr. Qu entered into a call option agreement (the
“Call Option Agreement”) with Joshua Tan (“Tan”), the sole shareholder of Glory
Period. The Call Option Agreement became effective upon the closing
of the Share Exchange. Under the Call Option Agreement, Tan shall
transfer up to 100% shares of Glory Period within the next 3 years to Qu for
nominal consideration, which would give Qu indirect ownership of a significant
percentage of our common stock. The Call Option Agreement provides
that Tan shall not dispose any of the shares of Glory Period without Qu’s prior
written consent.

Following
the consummation of the Share Exchange, Glory Period holds 55% of the issued and
outstanding shares of our common stock (not taking into consideration the shares
of common stock underlying the Notes and Warrants issued in the private
placement). The shares of our common stock held by Glory Period are
not being offered for resale pursuant to this prospectus.

Up
to 20,322,529 shares of common stock held by the selling stockholders or
underlying securities held by the selling stockholders.

Common
stock to be outstanding after the offering

Up
to 28,850,000 shares, assuming full conversion or exercise of the Notes,
Warrants and Placement Agent Warrants.

OTBCC
Symbol

BOPH. No
active market for our common stock presently exists.

Use
of proceeds

We
will not receive any proceeds from the sale of the common stock offered
hereby. However, we may receive up to a maximum of $15.84
million of proceeds from the exercise of the warrants held by certain
selling stockholders, which proceeds we would expect to use for general
working capital. No assurances can be given, however, that all
or any portion of such warrants will ever be
exercised.

5

RISK
FACTORS

Our
business, operations and financial condition are subject to various significant
risks. Some of these risks are described below and you should take
these risks into account in making a decision to invest in our common
stock. If any of the following risks actually accurs, we may not be
able to conduct our business as currently planned and our financial condition
and operating results could be seriously harmed. In that case, the
market price of our common stock could decline and you could lose all or part of
your investment in our common stock.

Risks
Related to Our Business

Our
limited operating history may not serve as an adequate basis to judge our future
prospects and results of operations.

Our
limited operating history in the traditional Chinese herbal medicines industry
may not provide a meaningful basis for evaluating our business. Bohai
entered into its current line of business in September 2004. Although Bohai’s
revenues have grown rapidly since its inception, we cannot guarantee that we
will maintain profitability or that we will not incur net losses in the
future. We will continue to encounter risks and difficulties that
companies at a similar stage of development frequently experience, including the
potential failure to:

maintain
adequate control of our expenses allowing us to realize anticipated
revenue growth;

·

implement
our product development, marketing, sales and acquisition strategies and
adapt and modify them as
needed;

·

integrate
any future acquisitions; and

·

anticipate
and adapt to changing conditions in the Chinese herbal medicines industry
resulting from changes in government regulations, mergers and acquisitions
involving our competitors, technological developments and other
significant competitive and market
dynamics.

If we are
unable to address any or all of the foregoing risks, our business may be
materially and adversely affected.

6

We
will likely need to raise additional funds in the future to grow our business,
which funds may not be available on acceptable terms or at all, and, without
additional funds, we may not be able to maintain or expand our
business.

We expect
that the net proceeds from our January 2010 private placement, together with
cash generated from our operations, will be sufficient to fund our projected
operations for at least the next 12 months. It is likely however that
in the future we will require substantial funds in order to fund operating
expenses and growth plans to develop manufacturing, marketing and sales
capabilities and to cover public company costs. Without enough funds,
we may not be able to meet these goals. We may seek additional
funding through public or private financing or through collaborative
arrangements with strategic partners.

You
should also be aware that in the future:

·

We
cannot be certain that additional capital will be available on favorable
terms, if at all;

·

Any
available additional financing may not be adequate to meet our goals;
and

·

Any
equity financing would result in dilution to our
stockholders.

If we
cannot raise additional funds when needed, or on acceptable terms, we may not be
able to effectively execute our growth strategy, take advantage of future
opportunities, or respond to competitive pressures or unanticipated
requirements. In addition, we may be required to scale back or
discontinue our production and development program, or obtain funds through
strategic alliances that may require us to relinquish certain
rights.

We
have significant short-term debt obligations, which mature in less than one
year. Our inability to extend the maturities of, or to refinance,
this debt could result in defaults, and in certain instances, foreclosures on
our assets. Moreover, we may be unable to obtain financing to fund
ongoing operations and future growth.

We
currently depend on short-term bank loans and net revenues to meet our
short-term cash requirements. As of March 31, 2010, our total bank
debt outstanding was $4.38 million which carries maturity periods ranging from
six months to one year, while the short-term and revolving nature of these
credit facilities is common in China. The majority of this debt is
guaranteed by third-parties and our CEO, Mr. Qu, and a portion is secured by our
inventories and fixed assets. In China, short-term bank loans
generally mature in one year or less and contain no specific renewal
terms. However, it is customary practice for banks and borrowers to
negotiate roll-overs or renewals of short-term borrowings on an on-going basis
shortly before they mature. Although we have renewed our short-term
borrowings in the past, we cannot assure you that we will be able to renew these
loans in the future as they mature. If we are unable to obtain
renewals of these loans or sufficient alternative funding on reasonable terms
from banks or other parties, we will have to repay these borrowings with the
cash on our balance sheet or cash generated by our future operations, if
any.

Moreover,
we cannot assure you that our business will generate sufficient cash flow from
operations to repay these borrowings. Failure to obtain extensions of
the maturity dates of, or to refinance, these obligations or to obtain
additional equity financing to meet these debt obligations would result in an
event of default with respect to such obligations and could result in the
foreclosure on the collateral. The sale of such collateral at
foreclosure would significantly disrupt our ability to produce products for our
customers in the quantities required by customer orders or deliver products in a
timely fashion, which could significantly lower our revenues and
profitability.

7

In
addition, we may be exposed to changes in interest rates. If interest
rates increase substantially, our results of operations could be adversely
affected.

We
have not yet developed comprehensive independent corporate governance.

As of the
date of this prospectus, we have no audit, compensation, or nominating
committees of our board of directors and have not established formal corporate
governance procedures. A lack of independent controls over our
corporate affairs may result in potential or actual conflicts of interest
between Mr. Qu and our stockholders. We presently have no policy to
resolve such conflicts. The absence of customary standards of
corporate governance may leave our stockholders without protections against
interested director transactions, conflicts of interest, if any, and similar
matters and any potential investors may be reluctant to provide us with funds
necessary to expand our operations.

We
have been heavily dependent on sales of four key products.

Four of
our products, namely Tongbi Capsules, Tongbi Tablets, Lung Nourishing Cream and
Tongshangning Tablets represented approximately 22%, 16%, 26%, and 15%,
respectively, of total sales for the fiscal year ended June 30,
2009. We expect that a significant portion of our future revenue will
continue to be derived from sales of these four products. If one or
more of these products were to become subject to a problem such as loss of
Certificates of Protected Variety of Traditional Chinese Medicine, unexpected
side effects, regulatory proceedings, publicity adversely affecting user
confidence or pressure from competing products, or if a new, more effective
treatment should be introduced, the negative impact on our revenues could be
significant. We held the Certificates of Protected Variety of
Traditional Chinese Medicine (Grade Two) issued by State Food and Drug
Administration of China (“SFDA”) for Tongbi Capsules and Shangtongning Tablets
which gave exclusive or near-exclusive rights to manufacture and distribute
these two medicines. These certificates expired in September 2009 and
we have filed an application for extending the protection period on March 12,
2009 for Tongbi Capsules. We can not assure you that we will obtain
the approvals to renew the Certificate of Protected Variety of Traditional
Chinese Medicine and the loss of such protection will have a material adverse
effect on our revenues. If we are unable to obtain approvals, these
products can be manufactured and sold by other pharmaceutical manufacturers in
China once the relevant protection periods elapse, which would increase our
competition and potentially have an adverse effect on our sales.

We
may not be able to adequately protect our intellectual property, which could
cause us to be less competitive and negatively impact our business.

We regard
our trademarks, trade secrets, patents and similar intellectual property as
critical to our success. We hold the trademark “Xian Ge” registered
with the PRC Trademark Bureau under the State Administration for Industry and
Commerce with a valid term effective through February 23, 2013. We
have received a patent in the PRC for lung nourishing cream with its production
method for the treatment of Lung-qi Deficiency Cough and Chronic
Bronchitis. If we are unable to obtain or maintain registered
intellectual property protections for our proprietary products or methods, these
products or methods could be infringed upon, which could materially adversely
affect our business.

We rely
on trademark, patent and trade secret law, as well as confidentiality agreement
with certain of our employees to protect our proprietary rights. For
senior managers, we include a standard confidentiality clause into the
employment agreement to prevent them from disclosing the formula or processing
procedure to outside parties. No assurance can be given that our intellectual
property will not be challenged, invalidated, infringed or circumvented, or that
our intellectual property rights will provide competitive advantages to
us. Any material impairment of our intellectual property rights could
have a material adverse effect on our business.

8

The
availability of counterfeit versions of our products could adversely affect our
sales volume, revenue and profitability and brand value.

The
availability of sales of counterfeits of our products in China could adversely
impact our sales and potentially damage the value and reputation of our
brands. For example, we recently discovered evidence of a counterfeit
Tongbi Capsule sold in China which we believe infringes on our intellectual
property rights. We have addressed this situation with applicable PRC
authorities and do not believe it will adversely effect our company, but similar
situations may arise in the future which could adversely impact our sales,
profitability and brand value. Additionally, consumers who mistake
counterfeit Tongbi Capsules or counterfeits of our other products for our
products may attribute quality and efficacy deficiencies in the counterfeit
product to our brands and discontinue purchasing our brands, which would have an
adverse effect on our sales and profitability.

We
face competition in the pharmaceutical market in the PRC and such competition
could cause our sales revenue and profits to decline.

According
to SFDA in China, there were approximately 5,071 pharmaceutical manufacturing
companies in the PRC as of the end of June 2004, of which approximately 3,237
manufacturers obtained certificates of Good Manufacturing Practices
Certification (“GMP”). After GMP certification became a mandatory
requirement on July 1, 2004, approximately 1,834 pharmaceutical manufacturers
were forced to cease production. Only the 3,237 pharmaceutical
manufacturers with GMP certifications may continue their manufacturing
operations. As of the end of 2006, there were 4,682 enterprises
manufacturing medicines and formulation in China. The certificates,
permits, and licenses required for pharmaceutical operation in the PRC create a
potentially significant barrier for new competitors seeking entrance into the
market. Despite these obstacles, we face competitors that will
attempt to create, or are already marketing, products in the PRC that are
similar to ours. Many of our current and potential competitors have
significantly longer operating histories and significantly greater managerial,
financial, marketing, technical and other competitive resources, as well as
greater name recognition, than we do. These competitors may be able
to respond more quickly to new or changing opportunities and customer
requirements and may be able to undertake more extensive promotional activities,
offer more attractive terms to customers or adopt more aggressive pricing
policies. We cannot assure you that we will be able to compete
effectively with current or future competitors or that the competitive pressures
we face will not harm our business.

Our
business depends and will depend substantially on the continuing efforts of our
present and future executive officers, and our business may be severely
disrupted if we lose, are unable to obtain or unable to replace their
services.

Our
future prospects depend substantially on the continued services of our
President, Chief Executive Officer and Chairman of the Board, Mr.
Qu. We have no employment agreement with Mr. Qu and do not maintain
key man life insurance on Mr. Qu’s life. We also have other corporate
officers and key employees, and if Mr. Qu or one or more of our future executive
officers or key employees are unable or unwilling to continue in their
positions, we may not be able to replace them readily, if at
all. Therefore, our business may be severely disrupted, and we may
incur additional expenses to recruit and retain new officers. In
addition, if any of our executives joins a competitor or forms a competing
company, we may lose some of our customers.

9

Our
business and growth will suffer if we are unable to hire and retain key
personnel that are in high demand.

Our
future performance depends on our ability to attract and retain highly skilled
chemists, pharmaceutical engineers, technical, marketing and sales personnel,
especially qualified personnel for our operations in China. Qualified
individuals are in high demand in China, and there are insufficient experienced
personnel to fill the demand. Therefore, we may not be able to
attract or retain the personnel we need to succeed. Our business
development would be hindered if we lost the services of some key
personnel.

Our
business is highly dependent on continually developing or acquiring new and
advanced products, technologies, and processes and failure to do so may cause us
to lose our competitiveness in the pharmaceutical industry and may cause our
profits to decline.

To remain
competitive in the pharmaceutical industry, it is important to continually
develop new and advanced products, technologies and processes. There
is no assurance that our competitors’ new products, technologies and processes
will not render our company’s existing products obsolete or
non-competitive. Our company’s competitiveness in the pharmaceutical
market therefore relies upon our ability to enhance our current products,
introduce new products, and develop and implement new technologies and
processes. Our company’s failure to technologically evolve and/or
develop new or enhanced products may cause us to lose our competitiveness in the
pharmaceutical industry and may cause our profits to decline. It is
likely that our efforts to grow our products lines will be focused on
acquisitions of such products from third parties. There are many
risks attendant to the acquisition of assets or companies, including
availability, pricing, competition and, if acquisitions are consummate,
integration. If we are unable to so acquire and integrate new
products, our revenue and profitability may suffer.

Our
research and development may be costly and/or untimely, and there are no
assurances that our research and development will either be successful or
completed within the anticipated timeframe, if ever at all.

We do not
presently rely on research and development activities as our business is focused
on expanding sales of our existing products. However, in the future,
the research and development of new products may play an important role for our
company. Development of new products requires significant research,
development and clinical testing efforts, and we currently have limited
resources to devote to and limited capabilities to conduct the development of
new products. We have only one full-time employee who is engaged in
research and development, so we mainly dependent on a third-party, Yantai
Tianzheng Medicine Research and Development Co., Ltd., to perform the limited
amount of research and development that we undertake. If research and
development activities become more important for us, and if we or third parties
that we retain are unable to perform research and development successfully, our
business and results of operations could be negatively impacted.

As of the
date of this prospectus, we have two products, namely Forsythia Capsule and Fern
Injection, under research and development. The research and
development of new products is costly and time consuming, and there are no
assurances that our research and development of new products will either be
successful or completed within the anticipated time frame, if ever at
all. There are also no assurances that if the product is developed,
that it will lead to actual commercialization and sales.

10

The
commercial performance of our products depends upon the degree of market
acceptance among the medical community and failure to attain market acceptance
among the medical community may have an adverse impact on our operations and
profitability.

The
commercial performance of our products depends upon the degree of market
acceptance among the medical community, such as hospitals and
physicians. Even if our products are approved by SFDA, and even if
our products are authorized to be eligible for reimbursement under Chinese
national medical insurance programs, there is no assurance that physicians will
prescribe or recommend our products to patients. Furthermore, a
product’s prevalence and use at hospitals may be contingent upon our
relationship with the medical community. The acceptance of our
products among the medical community may depend upon several factors, including
but not limited to, the product’s acceptance by physicians and patients as a
safe and effective treatment, cost effectiveness, potential advantages over
alternative treatments, and the prevalence and severity of side
effects. Failure to attain market acceptance among the medical
community may have an adverse impact on our operations and
profitability.

We
may not be able to obtain the regulatory approvals or clearances that are
necessary to commercialize our products.

The PRC
and other countries impose significant statutory and regulatory obligations upon
the manufacture and sale of pharmaceutical products. Each regulatory
authority typically has a lengthy approval process in which it examines
pre-clinical and clinical data and the facilities in which the product is
manufactured. Regulatory submissions must meet complex criteria to
demonstrate the safety and efficacy of the ultimate products. Addressing these
criteria requires considerable data collection, verification and analysis. We
may spend time and money preparing regulatory submissions or applications
without assurances as to whether they will be approved on a timely basis or at
all.

Our
product candidates, some of which are currently in the early stages of
development, will require significant additional development and pre-clinical
and clinical testing prior to their commercialization. These steps and the
process of obtaining required approvals and clearances can be costly and
time-consuming. If our potential products are not successfully developed, cannot
be proven to be safe and effective through clinical trials, or do not receive
applicable regulatory approvals and clearances, or if there are delays in the
process:

·

the
commercialization of our products could be adversely
affected;

·

any
competitive advantages of the products could be diminished;
and

·

revenues
or collaborative milestones from the products could be reduced or
delayed.

Governmental
and regulatory authorities may approve a product candidate for fewer indications
or narrower circumstances than requested or may condition approval on the
performance of post-marketing studies for a product candidate. Even if a product
receives regulatory approval and clearance, it may later exhibit adverse side
effects that limit or prevent its widespread use or that would force us to
withdraw the product from the market.

Any
marketed product and its manufacturer will continue to be subject to strict
regulation after approval. Results of post-marketing programs may limit or
expand the further marketing of products. Unforeseen problems with an approved
product or any violation of regulations could result in restrictions on the
product, including its withdrawal from the market and possible civil
actions.

11

In
manufacturing our products we will be required to comply with applicable good
manufacturing practices regulations, which include requirements relating to
quality control and quality assurance, as well as the maintenance of records and
documentation. If we cannot comply with regulatory requirements, including
applicable good manufacturing practice requirements, we may not be allowed to
develop or market the product candidates. If we or our manufacturers fail to
comply with applicable regulatory requirements at any stage during the
regulatory process, we may be subject to sanctions, including fines, product
recalls or seizures, injunctions, refusal of regulatory agencies to review
pending market approval applications or supplements to approve applications,
total or partial suspension of production, civil penalties, withdrawals of
previously approved marketing applications and criminal
prosecution.

Our
current and future products may have inadvertent and/or harmful side effects
which would expose us to the risks of litigation and a loss of
revenue.

All
medicines have certain side effects. Although all of our medicines
sold on market have passed proper testing and are approved by SFDA, the products
may still inadvertently adverse effects on the health of the consumers. If such
side effect is identified after marketing and sale of the products, the products
may be required to be withdrawn from the market, or have a change in labeling.
If a product liability claim is brought against us, it may, regardless of merit
or eventual outcome, result in damage to our reputation, breach of contracts
with consumers, decreased demand for our products, costly litigation and loss of
revenue.

Natural
disasters, weather conditions and other environmental factors affect our raw
material supply, and a reduction in the quality or quantity of our herb supplies
may have material adverse consequences on our financial results.

Our
business may be adversely affected by weather and environmental factors beyond
our control, such as natural disasters and adverse weather
conditions. The production of our products depends on the
availability of raw materials, a significant portion of which are herbs.
These herbs tend to be very sensitive crops, which can be readily damaged
by harsh weather, by disease, and by pests. If our suppliers’ crops are
destroyed by drought, flood, storm, blight, or the other woes of farming, we
will not be able to meet the demands of our customers, which will have a
material adverse effect on our business and financial condition and results.

Our
certificates, permits, and license are subject to governmental control and
renewal, and the failure to obtain renewal would cause all or part of our
operation to be suspended and have a material adverse effect on our financial
condition.

We are
subject to various PRC laws and regulations pertaining to the pharmaceutical
industry. We have obtained certain certificates, permits, and
licenses required for the operation of a pharmaceutical enterprise and the
manufacturing and distribution of pharmaceutical products in the
PRC. Some of the permits and license have expired or are about to
expire. We hold a Permit for the Production of Medicine (Lu
Zb20050330) issued by Shandong Branch of SFDA on January 1, 2006 which allows us
to engage in the production of tablets, capsules, granules, syrup, concentrated
decoctions, tincture (for oral use) and medical wine. Such permit
expires on December 31, 2010 and is material to our business. We also
hold a GMP Certificate (No. Lu K0587) issued by Shandong Branch of SFDA on June
18, 2009, the scope of inspection of which is tablets, capsules, granules,
syrup, concentrated decoctions, tincture and medical wine. Such
certificate expires on June, 14, 2014. The Permit for the Production
of Medicine and GMP certificates are each valid for a term of five years and
must be renewed before their expiration.

12

We hold a
Drug Approval Number (“DAN”) for each of our products, and the valid terms of
such DANs have expired. We submitted the applications for
re-registration on June 29, 2007 which were accepted by SFDA, although the
approvals have not yet been granted. We have been advised that the
approval processes for these drugs have been started to be reviewed by the
Shandong Branch of SFDA. During the renewal period, we will be
permitted to continue manufacturing these drugs as if the renewals had been
approved. Our license to produce medical wine has a term valid
through December 31, 2010.

During
the application or renewal process for our licenses and permits, we will be
evaluated and re-evaluated by the appropriate governmental authorities and must
comply with the prevailing standards and regulations, which may change from time
to time. In the event that we are not able to obtain or renew
the certificates, permits and licenses, all or part of our operations may be
suspended by the government, which would have a material adverse effect on our
business and financial condition. Furthermore, if escalating
compliance costs associated with governmental standards and regulations restrict
or prohibit any part of our operations, it may adversely affect our results of
operations and profitability.

We held
the Certificates of Protected Variety of Traditional Chinese Medicine (Grade
Two) (the “Certificate of Protection”) issued by SFDA for two of our products,
Tongbi Capsules and Shangtongning Tablets. The protection periods for
both Tongbi Capsules and Shangtongning Tablets expired in September
2009. We have submitted application to extend the protection periods
for Tongbi Capsules to extend such protection period on March 12, 2009 and SFDA
has recently started its review process. We have decided not to
submit extension application of Shangtongning Tablets, because the SFDA will not
approve a Certificate of Protection for Shangtongning Tablets or any other
products that are currently produced by more than three manufacturers in China
according to applicable Chinese SFDA regulations. Our inability to regain the
Certificate of Protection for Tongbi Capsules, which is one of our leading
products, and the loss of the Certificate of Protection for our product
Shangttongning Tablets, may grant other manufactures the right to produce
similar products, which would result in the loss of competitive advantage and
could adversely impact our sales results.

Our
failure to fully comply with PRC labor laws, including laws relating to social
insurance, may expose us to potential liability and increased
costs.

Companies
operating in China must comply with a variety of labor laws, including certain
pension, health insurance, unemployment insurance and other welfare-oriented
payment obligations. Our failure to comply with these laws could have
a material adverse effect on our business. For example, we are
currently paying social insurance for our 105 full-time employees. We also
have 304 sales representatives that we believe we are not required to pay social
insurance for as these sales representatives are not legally employees of ours,
but are rather independent contractors. We have not paid social insurance
for 195 of our full-time employees whose personal identification files cannot be
transferred to us since they are not registered residents in Yantai, Shandong
Province, and as an alternative we have paid these employees compensations
included in their monthly salary with an amount equals to the amount of monthly
social insurance that we are required to pay and the employees could pay the
social insurance by themselves. We believe these employees have been
covered by social insurance and we are not required to make any contributions to
the government in addition to the amount we have paid to these
employees. However, our interpretation of these requirements may be
wrong, and the PRC regulatory authorities may not take the same view as we do on
this subject. If the PRC regulatory authorities take the view that we are
required to pay social insurance for our independent contractors or other
employees, our failure to make previous payments may be in violation of
applicable PRC labor laws and we cannot assure you that PRC governmental
authorities will not impose penalties on us for failure to comply. In
addition, in the event that any current or former employee files a complaint
with the PRC government, we may be subject to making up the social insurance
payment obligations as well as paying administrative fines. The total cost
of these payments and any related fines or penalties could be very significant
and could have a material adverse effect on our working
capital.

13

In
addition, the new PRC Labor Contract Law took effect January 1, 2008 and governs
standard terms and conditions for employment, including termination and lay-off
rights, contract requirements, compensation levels and consultation with labor
unions, among other topics. In addition, the law limits
non-competition agreements with senior management and other employees who have
access to confidential information to two years and imposes restrictions or
geographical limits. This new labor contract law will increase our
labor costs, which could adversely impact our results of
operations.

We
are subject to PRC government price control of drugs which may limit our
profitability and even cause us to stop manufacturing certain
products.

The State
Development and Reform Commission of the PRC (“SDRC”) and the price
administration bureaus of the relevant provinces of the PRC in which the
pharmaceutical products are manufactured are responsible for the retail price
control over our pharmaceutical products. The SDRC sets the price
ceilings for certain pharmaceutical products in the PRC. All of our products
except those under the protection periods are subject to such price controls as
of the date of this Memorandum and we prices our medicines well under
government-mandated caps. There is no assurance that whether our other products
will remain unaffected by the price control. Where our products are
subject to a price ceiling, we will need to adjust the product price to meet the
requirement and to accommodate for the pricing of competitors in the competition
for market shares. The price ceilings set by the SDRC may limit our
profitability, and in some instances, such as where the price ceiling is below
production costs, may cause us to stop manufacturing certain products which may
adversely affect our results of operations.

Because
we may not be able to obtain business insurance in the PRC, we may not be
protected from risks that are customarily covered by insurance in the United
States.

Business
insurance is not readily available in the PRC. To the extent that we
suffer a loss of a type which would normally be covered by insurance in the
United States, such as product liability and general liability insurance, we
would incur significant expenses in both defending any action and in paying any
claims that result from a settlement or judgment. We have not
obtained fire, casualty and theft insurance, and there is no insurance coverage
for our raw materials, goods and merchandise, furniture and buildings in
China. Any losses incurred by us will have to be borne by us without
any assistance, and we may not have sufficient capital to cover material damage
to, or the loss of, our production facility due to fire, severe weather, flood
or other cause, and such damage or loss would have a material adverse effect on
our financial condition, business and prospects.

We
may be subject to product liability claims, for which we have no
insurance.

We may
produce products which inadvertently have an adverse pharmaceutical effect on
the health of individuals. Existing laws and regulations in China do not
require us to maintain third party liability insurance to cover product
liability claims. However, if a product liability claim is brought against
us, it may, regardless of merit or eventual outcome, result in damage to our
reputation, breach of contracts with our customers, decreased demand for our
products, costly litigations, product recalls, loss of revenue, and our
inability to commercialize some products.

Our
governing documents require us to indemnify our current and former directors,
officers, employees and agents against most actions of a civil, criminal,
administrative or investigative nature. Generally, we are required to
advance indemnification expenses prior to any final adjudication of an
individual’s culpability. The expense of indemnifying our current and
former directors, officers and employees and agents in their defense or related
expenses as a result of any actions related to the internal investigation and
financial restatement may be significant and in excess of any insurance coverage
we may have. As such, there is a risk that our indemnification
obligations could divert needed financial resources and may adversely affect our
business, financial condition and results of operations.

Potential
environmental liability could have a material adverse effect on our operations
and financial condition.

As a
manufacturer, we are subject to various Chinese environmental laws and
regulations on air emission, waste water discharge, solid wastes and
noise. We are in the process of applying for Pollution Discharge
Permit, other than that we believe that our operations are in substantial
compliance with current environmental laws and regulations. We can not assure
you that we may not be able to comply with these regulations at all times as the
Chinese environmental legal regime is evolving and becoming more
stringent. Therefore, if the Chinese government imposes more
stringent regulations in future, we may have to incur additional and potentially
substantial costs and expenses in order to comply with new regulations, which
may negatively affect our results of operations. Furthermore, no
assurance can be given that all potential environmental liabilities have been
identified or properly quantified or that any prior owner, operator, or tenant
has not created an environmental condition unknown to us. If we fail
to comply with any of the present or future environmental regulations in any
material aspects, we may suffer from negative publicity and be subject to claims
for damages that may require us to pay substantial fines or have our operations
suspended or even be forced to cease operations.

Risks
Relating to the Our Corporate Structure

Our
corporate structure, in particular the VIE Agreements, are subject to
significant risks, as set forth in the following risk factors.

The
PRC government may determine that the VIE Agreements which we utilize to control
our operating subsidiary are not in compliance with applicable PRC laws, rules
and regulations and that they are therefore unenforceable.

In the
PRC it is widely understood that foreign invested enterprises are forbidden or
restricted to engage in certain businesses or industries which are sensitive to
the economy. As we intend to centralize our management and operation
in the PRC without being restricted to conduct certain business activities which
are important for our current or future business but are restricted or might be
restricted in the future, we believe our VIE Agreements will be essential for
our business operation. In order for WFOE to manage and operate our
business through Bohai in the PRC, the VIE Agreements were entered into under
which almost all the business activities of Bohai are managed and operated by
WFOE and almost all economic benefits and risks arising from the business of
Bohai are transferred to WFOE.

There are
risks involved with the operation of Bohai under the VIE
Agreements. We have been advised by PRC legal counsel that if the PRC
government determines the VIE Agreement used to control the operating company to
be unenforceable as they circumvent the PRC restrictions relating to foreign
investment restrictions, the relevant regulatory authorities would have broad
discretion in dealing with such breach, including:

15

·

imposing
economic penalties;

·

discontinuing
or restricting the operations of WFOE or
Bohai;

·

imposing
conditions or requirements in respect of the VIE Agreements with which
WFOE may not be able to comply;

·

requiring
us to restructure the relevant ownership structure or
operations;

·

taking
other regulatory or enforcement actions that could adversely affect our
business; and

·

revoking
the business license and/or the licenses or certificates of WFOE, and/or
voiding the VIE Agreements.

Any of
these actions could have a material adverse impact on our business, financial
condition and results of operations.

We
depend upon the VIE Agreements in conducting our production, manufacturing and
distribution of traditional Chinese herbal medicines in the PRC, which may not
be as effective as direct ownership.

We
conduct our production, manufacturing and distribution of traditional Chinese
herbal medicines in the PRC and generate the revenues through the VIE
Agreements. The VIE Agreements may not be as effective in providing
us with control over Bohai as direct ownership. The VIE Agreements
are governed by PRC laws and provide for the resolution of disputes through
arbitration proceedings pursuant to PRC laws. Accordingly, the VIE
Agreements will be interpreted in accordance with PRC laws. If Bohai
or its shareholders fail to perform the obligations under the VIE Agreements, we
may have to rely on legal remedies under PRC laws, including seeking specific
performance or injunctive relief, and claiming damages, and there is a risk that
we may be unable to obtain these remedies. The legal environment in
China is not as developed as in other jurisdictions. As a result,
uncertainties in the PRC legal system could limit our ability to enforce the VIE
Agreements.

The
pricing arrangement under the VIE Agreements may be challenged by the PRC tax
authorities.

We could
face adverse tax consequences if the PRC tax authorities determine that the VIE
Agreements were not entered into based on arm’s length
negotiations. If the PRC tax authorities determine that the VIE
Agreements were not entered into on an arm’s length basis, they may adjust the
income and expenses of our company for PRC tax purposes which could result in
higher tax liability.

We
rely on the approval certificates and business license held by Bohai and any
deterioration of the relationship between WFOE and Bohai could materially and
adversely affect the overall business operation of our company.

Pursuant
to the VIE Agreements, our production, manufacturing and distribution of
traditional Chinese herbal medicines in China is undertaken on the basis of the
approvals, certificates and business license as well as other requisite licenses
held by Bohai. There is no assurance that Bohai will be able to renew
its licenses or certificates when their terms expire with substantially similar
terms as the ones they currently hold.

16

Further,
our relationship with Bohai is governed by the VIE Agreements, which are
intended to provide us, through our indirect ownership of WFOE, with effective
control over the business operations of Bohai. However, the VIE
Agreements may not be effective in providing control over the applications for
and maintenance of the licenses required for our business
operations. Bohai could violate the VIE Agreements, go bankrupt,
suffer from difficulties in its business or otherwise become unable to perform
its obligations under the VIE Agreements and, as a result, our operations,
reputation, business and stock price could be severely harmed.

If
WFOE exercises the purchase options over Bohai’s equity pursuant to the VIE
Agreements, the payment of purchase prices could materially and adversely affect
the financial position of our company.

Under the
VIE Agreements, WFOE holds an option to purchase all or a portion of the equity
of Bohai at a price, pro rata in case of not all, based on the capital paid in
by the Bohai shareholders (namely, $2.94 million or RMB 20 million
). In the case that applicable PRC laws and regulations require an
appraisal of the equity interest or provide other restriction on the purchase
price, the purchase price shall be the lowest price permitted under the
applicable PRC laws and regulations. As Bohai is already a contractually
controlled affiliate to our company, WFOE’s purchase of Bohai’s equity would not
bring immediate benefits to our company and the exercise of the option and
payment of the purchase prices could adversely affect the financial position of
our company.

Risks
Associated With Doing Business in China

There
are substantial risks associated with doing business in China, some of which are
addressed in the following risk factors.

The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities.

We are
dependent on our relationship with the local government in the province in which
we operate our business. The Chinese government has exercised and
continues to exercise substantial control over virtually every sector of the
Chinese economy through regulation and state ownership. Our ability
to operate in China may be harmed by changes in its laws and regulations,
including those relating to taxation, environmental regulations, land use
rights, property and other matters. The central or local governments
of in the PRC jurisdictions may impose new, stricter regulations or
interpretations of existing regulations that would require additional
expenditures and efforts on our part to ensure our compliance with such
regulations or interpretations. Accordingly, government actions in
the future, including any decision not to continue to support recent economic
reforms and to return to a more centrally planned economy or regional or local
variations in the implementation of economic policies, could have a significant
effect on economic conditions in China or particular regions thereof, and could
require us to divest ourselves of any interest we then hold in Chinese
properties.

Future
inflation in China may inhibit our ability to conduct business in China. In
recent years, the Chinese economy has experienced periods of rapid expansion and
high rates of inflation. Rapid economic growth can lead to growth in
the money supply and rising inflation. If prices for our products
rise at a rate that is insufficient to compensate for the rise in the costs of
supplies, it may have an adverse effect on profitability. These
factors have led to the adoption by Chinese government, from time to time, of
various corrective measures designed to restrict the availability of credit or
regulate growth and contain inflation. High inflation may in the
future cause Chinese government to impose controls on credit and/or prices, or
to take other action, which could inhibit economic activity in China, and
thereby harm the market for our products.

17

Our
operations and assets in China are subject to significant political and economic
uncertainties and the company may lose all of its assets and operations if the
Chinese government alters its policies to further restrict foreign participation
in business operating in the PRC.

Changes
in PRC laws and regulations, or their interpretation, or the imposition of
confiscatory taxation, restrictions on currency conversion, imports and sources
of supply, devaluations of currency or the nationalization or other
expropriation of private enterprises could have a material adverse effect on our
business, results of operations and financial condition. Under its
current leadership, the Chinese government has been pursuing economic reform
policies that encourage private economic activities and greater economic
decentralization. There is no assurance, however, that the Chinese
government will continue to pursue these policies, or that it will not
significantly alter these policies from time to time without notice.We may lose all of our
assets and operations if the Chinese government alters its policies to further
restrict foreign participation in business operating in the PRC.

We derive all of our sales in China
and a slowdown or other adverse developments in the PRC economy may materially
and adversely affect our customers, demand for our products and our
business.

All of
our sales are generated in China. We anticipate that sales of our
products in China will continue to represent all of our total sales in the near
future. Although the PRC economy has grown significantly in recent
years, we cannot assure you that such growth will continue. The
industry which we are involved in the PRC is relatively new and growing, but we
do not know how sensitive we are to a slowdown in economic growth or other
adverse changes in the PRC economy which may affect demand for our
products. In addition, the Chinese government also exercises
significant control over Chinese economic growth through the allocation of
resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment to particular
industries or companies. Efforts by the Chinese government to slow
the pace of growth of the Chinese economy could result in reduced demand for our
products. A slowdown in overall economic growth, an economic downturn
or recession or other adverse economic developments in the PRC may materially
reduce the demand for our products and materially and adversely affect our
business.

Currency fluctuations and
restrictions on currency exchange may adversely affect our business, including
limiting our ability to convert Chinese Renminbi into foreign currencies and, if
Chinese Renminbi were to decline in value, reducing our revenue in U.S. dollar
terms.

Our
reporting currency is the U.S. dollar and our operations in China use their
local currency as their functional currencies. Substantially all of
our revenue and expenses are in the Chinese currency, the
Renminbi. We are subject to the effects of exchange rate fluctuations
with respect to any of these currencies. For example, the value of
the Renminbi depends to a large extent on Chinese government policies and
China’s domestic and international economic and political developments, as well
as supply and demand in the local market. Since 1994, the official
exchange rate for the conversion of the Renminbi to the U.S. dollar had
generally been stable and the Renminbi had appreciated slightly against the U.S.
dollar. In July 2005, the Chinese government changed its policy of
pegging the value of the Renminbi to the U.S. dollar. Under this
policy, which was halted in 2008 due to the worldwide financial crisis, the
Renminbi was permitted to fluctuate within a narrow and managed band against a
basket of certain foreign currencies. In June 2010, the Chinese
government announced its intention to again allow the Renminbi to fluctuate
within the 2005 parameters. It is possible that the Chinese
government could adopt an even more flexible currency policy, which could result
in more significant fluctuation of Renminbi against the U.S. dollar, or it could
adopt a more restrictive policy. We can offer no assurance that the
Renminbi will be stable against the U.S. dollar or any other foreign
currency.

18

Our
financial statements are translated into U.S. dollars at the average exchange
rates in each applicable period. To the extent the U.S. dollar
strengthens against foreign currencies, the translation of these foreign
currencies denominated transactions results in reduced revenue, operating
expenses and net income for our international operations. Similarly,
to the extent the U.S. dollar weakens against foreign currencies, the
translation of these foreign currency denominated transactions results in
increased revenue, operating expenses and net income for our international
operations. We are also exposed to foreign exchange rate fluctuations
as we convert the financial statements of our foreign consolidated subsidiaries
into U.S. dollars in consolidation. If there is a change in foreign
currency exchange rates, the conversion of the foreign consolidated
subsidiaries’ financial statements into U.S. dollars will lead to a translation
gain or loss which is recorded as a component of other comprehensive
income. In addition, we have certain assets and liabilities that are
denominated in currencies other than the relevant entity’s functional
currency. Changes in the functional currency value of these assets
and liabilities create fluctuations that will lead to a transaction gain or
loss. We have not entered into agreements or purchased instruments to
hedge our exchange rate risks, although we may do so in the
future. The availability and effectiveness of any hedging transaction
may be limited and we may not be able to hedge our exchange rate
risks.

The
State Administration of Foreign Exchange (“SAFE”) restrictions on currency
exchange may limit our ability to receive and use our sales revenue effectively
and to pay dividends, and the restrictions may cause a delay in payment of
interest on the Notes.

All of
our sales revenue and expenses are denominated in the Chinese currency,
Renminbi. Under PRC law, the Renminbi is currently convertible under
the “current account,” which includes dividends and trade and service-related
foreign exchange transactions, but not under the “capital account,” which
includes foreign direct investment and loans. Currently, our PRC
operating subsidiary, Bohai, may purchase foreign currencies for settlement of
current account transactions, including payments of dividends to us, without the
approval of SAFE, by complying with certain procedural
requirements. However, the relevant PRC government authorities may
limit or eliminate our ability to purchase foreign currencies in the
future. Since a significant amount of our future revenue will be
denominated in Renminbi, any existing and future restrictions on currency
exchange may limit our ability to utilize revenue generated in Renminbi to fund
our business activities outside China that are denominated in foreign
currencies.

All of
our income is derived from the consulting fees we receive from Bohai through the
VIE Agreements. SAFE restrictions may delay the payment of dividends,
since we have to comply with certain procedural requirement and we may
experience difficulties in completing the administrative procedures necessary to
obtain and remit foreign currency for the payment of dividends from the profits
of WFOE, and it thus may delay our payment of interest to the Notes
holders.

Foreign
exchange transactions by PRC operating subsidiaries under the capital account
continue to be subject to significant foreign exchange controls and require the
approval of or need to register with PRC government authorities, including
SAFE. In particular, if Bohai, our PRC operating subsidiary, borrows
foreign currency through loans from us or other foreign lenders, these loans
must be registered with SAFE, and if we finance Bohai by means of additional
capital contributions, these capital contributions must be approved by certain
government authorities, including the Ministry of Commerce, or their respective
local counterparts. These limitations could affect Bohai’s ability to
obtain foreign exchange through debt or equity financing.

19

The PRC
government also may at its discretion restrict access in the future to foreign
currencies for current account transactions. If the foreign exchange
control system prevents us from obtaining foreign currency, we may be unable to
pay the interest and principal on the Notes, pay dividends or meet obligations
that may be incurred in the future that require payment in foreign
currency.

The
PRC State Administration of Foreign Exchange restrictions on the use of offshore
holding companies in mergers and acquisitions in China may create regulatory
uncertainties that could restrict or limit our ability to operate.

In
November 2005, SAFE issued a public notice, known as Circular 75, concerning
foreign exchange registrations that are required in order to use of offshore
holding companies in mergers and acquisitions in China. The public notice
provides that if an offshore company controlled by PRC residents intends to
acquire a PRC company, such acquisition will be subject to registration with the
relevant foreign exchange authorities. The public notice also suggested
that registration with the relevant foreign exchange authorities is required for
any sale or transfer by the PRC residents of shares in an offshore holding
company that owns an onshore company. PRC residents must each submit a
registration form to the local SAFE branch with respect to their ownership
interests in the offshore company, and must also file an amendment to such
registration if the offshore company experiences material events, such as
changes in the share capital, share transfer, mergers and acquisitions, spin-off
transactions or use of assets in China to guarantee offshore
obligations.

Internal
implementing guidelines issued by SAFE, which became public in June 2007 (known
as Notice 106), expanded the reach of Circular 75 by: (i) purporting to cover
the establishment or acquisition of control by PRC residents of offshore
entities which merely acquire “control” over domestic companies or assets, even
in the absence of legal ownership; (ii) adding requirements relating to the
source of the PRC resident’s funds used to establish or acquire the offshore
entity; (iii) covering the use of existing offshore entities for offshore
financings; (iv) purporting to cover situations in which an offshore special
purpose vehicle, or SPV, establishes a new subsidiary in China or acquires an
unrelated company or unrelated assets in China; and (v) making the domestic
affiliate of the SPV responsible for the accuracy of certain documents which
must be filed in connection with any such registration, notably, the business
plan which describes the overseas financing and the use of proceeds.
Amendments to registrations made under Circular 75 are required in connection
with any increase or decrease of capital, transfer of shares, mergers and
acquisitions, equity investment or creation of any security interest in any
assets located in China to guarantee offshore obligations, and Notice 106 makes
the offshore SPV jointly responsible for these filings. In the case of an
SPV which was established, and which acquired a related domestic company or
assets, before the implementation date of Circular 75, as applied by SAFE in
accordance with Notice 106, may result in fines and other penalties under PRC
laws for evasion of applicable foreign exchange restrictions. Any such
failure could also result in the SPV’s affiliates being impeded or prevented
from distributing their profits and the proceeds from any reduction in capital,
share transfer or liquidation to the SPV, or from engaging in other transfers of
funds into or out of China.

The PRC
regulatory authorities may take the view that our acquisition of indirect
ownership and controlling interest in Bohai through VIE arrangements shall be
subject to SAFE approval and registration. Any adverse action taken against us
by PRC regulatory authorities could significantly and negatively impact our
operations and the trading market for our common stock.

20

PRC
regulations and potential registration requirements relating to acquisitions of
PRC companies by foreign entities may create regulatory uncertainties that could
restrict or limit our ability to operate. Similarly, our failure to obtain
the prior approval of PRC authorities for our January 2010 private placement and
the listing and trading of our common stock could have a material adverse effect
on our business, operating results, reputation and trading price of our common
stock.

On August
8, 2006, the PRC Ministry of Commerce (“MOC”), joined by the State-owned Assets
Supervision and Administration Commission of the State Council, the State
Administration of Taxation, the State Administration for Industry and Commerce,
the China Securities Regulatory Commission (“CSRC”) and SAFE, released a
substantially amended version of the Provisions for Foreign Investors to Merge
with or Acquire Domestic Enterprises (the “Revised M&A Regulations”), which
took effect September 8, 2006. These new rules significantly revised
China’s regulatory framework governing onshore-to-offshore restructurings and
foreign acquisitions of domestic enterprises. These new rules signify
greater PRC government attention to cross-border merger, acquisition and other
investment activities, by confirming MOC as a key regulator for issues related
to mergers and acquisitions in China and requiring MOC approval of a broad range
of merger, acquisition and investment transactions. Further, the new rules
establish reporting requirements for acquisition of control by foreigners of
companies in key industries, and reinforce the ability of the Chinese government
to monitor and prohibit foreign control transactions in key
industries.

Among
other things, the revised M&A Regulations include new provisions that
purport to require that an offshore SPV, formed for listing purposes and
controlled directly or indirectly by PRC companies or individuals must obtain
the approval of the CSRC prior to the listing and trading of such SPV’s
securities on an overseas stock exchange. On September 21, 2006, the CSRC
published on its official website procedures specifying documents and materials
required to be submitted to it by SPVs seeking CSRC approval of their overseas
listings. However, the application of this PRC regulation remains unclear
with no consensus currently existing among the leading PRC law firms regarding
the scope and applicability of the CSRC approval requirement.

Our
principal stockholder, Glory Period, is 100% owned by Joshua Tan, a Singapore
citizen. As of the date of this prospectus, Glory Period holds 55% of our
outstanding common stock. Mr. Tan and Mr. Qu (the principal founder of
Bohai and our Chairman, President and Chief Executive Officer) entered into the
Call Option Agreement on December 7, 2009 by which Mr. Qu has an option to
acquire all the issued and outstanding shares of Glory Period within three years
for nominal consideration. Chance High, as the wholly owned subsidiary of
our company, formed WFOE on November 23, 2009 and WFOE obtained effective and
substantial control over Bohai further through executing the VIE Agreements on
December 7, 2009 by and among WFOE, Bohai and the three shareholders of Bohai
(including Mr. Qu). The PRC regulatory authorities may take the view that
entry into the VIE Agreements by WFOE and Bohai resulting in Mr. Qu, a PRC
resident becoming the majority owner and effective controlling party of our
company which acquired 100% indirect ownership of Bohai. The PRC
regulatory authorities may also take the view that the relevant parties should
fully disclose to SAFE or MOC of the overall restructuring arrangements, the
existence of the Share Exchange and related VIE Agreements. If the PRC
regulatory authorities take the view that the Share Exchange and VIE arrangement
constitutes a reverse ,merger or round-trip investment under the M&A
Regulations, we cannot assure you we may be able to obtain the approval required
from the national offices of MOC.

21

If the
PRC regulatory authorities take the view that the Share Exchange and the VIE
Agreements constitutes a reverse merger acquisition or round-trip investment
without the approval of the national offices of MOC, they could invalidate the
Share Exchange and VIE Agreements. Additionally, the PRC regulatory
authorities may take the view that any public offering plan of us will require
the prior approval of CSRC. If we cannot obtain MOC or CSRC approval in
case we are required to do so, our business and financial performance will be
materially adversely affected. We may also face regulatory actions or
other sanctions from the MOC or other PRC regulatory agencies. These
regulatory agencies may impose fines and penalties on our operations in the PRC,
limit our operating privileges in the PRC, delay or restrict the repatriation of
the proceeds from the Private Placement into the PRC, or take other actions that
could have a material adverse effect on our business, financial condition,
results of operations, reputation and prospects, as well as the trading price of
our common stock.

Also, if
later the CSRC requires that we obtain its approval, we may be unable to obtain
a waiver of the CSRC approval requirements, if and when procedures are
established to obtain such a waiver. Any uncertainties and/or negative publicity
regarding this CSRC approval requirement could have a material adverse effect on
the trading price of our common stock. Furthermore, published news reports
in China recently indicated that the CSRC may have curtailed or suspended
overseas listings for Chinese private companies. These news reports have created
further uncertainty regarding the approach that the CSRC and other PRC
regulators may take with respect to transactions that we have engaged in our may
in the future engage in. Any adverse action taken against us by PRC
regulatory authorities could significantly and negatively impact our operations
and the trading market for our common stock.

Because
our assets are located outside of the United States and half of our directors,
including our Chairman, and the majority of our officers reside outside of the
United States, it may be difficult for you to enforce your rights based on the
United States federal securities laws against us and these persons in the United
States or to enforce judgments of United States courts against us or him in the
PRC.

Our
Chairman of the Board and principal executive officer, Mr. Qu, resides outside
of the United States in China. In addition, another of our directors and a
majority of our officers are also located in China. Furthermore, our
operating subsidiary is located in the PRC and all of its assets are located
outside of the United States. China does not have a treaty with United
States providing for the reciprocal recognition and enforcement of judgments of
courts. It may therefore be difficult for investors in the United States
to enforce their legal rights based on the civil liability provisions of the
United States federal securities laws against us in the courts of either the
United States or the PRC and, even if civil judgments are obtained in courts of
the United States, to enforce such judgments in the PRC courts. Further,
it is unclear if extradition treaties now in effect between the United States
and the PRC would permit effective enforcement against us or our officers and
directors of criminal penalties, under the United States federal securities laws
or otherwise.

We
may have limited legal recourse under PRC laws if disputes arise under our
contracts with third parties.

The
Chinese government has enacted some laws and regulations dealing with matters
such as corporate organization and governance, foreign investment, commerce,
taxation and trade. However, their experience in implementing,
interpreting and enforcing these laws and regulations is limited, and our
ability to enforce commercial claims or to resolve commercial disputes is
unpredictable. If our new business ventures are unsuccessful, or other
adverse circumstances arise from these transactions, we face the risk that the
parties to these ventures may seek ways to terminate the transactions, or, may
hinder or prevent us from accessing important information regarding the
financial and business operations of these acquired companies. The
resolution of these matters may be subject to the exercise of considerable
discretion by agencies of the Chinese government, and forces unrelated to the
legal merits of a particular matter or dispute may influence their
determination. Any rights we may have to specific performance, or to seek an
injunction under PRC laws, in either of these cases, are severely limited, and
without a means of recourse by virtue of the Chinese legal system, we may be
unable to prevent these situations from occurring. The occurrence of any
such events could have a material adverse effect on our business, financial
condition and results of operations. Although legislation in China over
the past 30 years has significantly improved the protection afforded to various
forms of foreign investment and contractual arrangements in China, these laws,
regulations and legal requirements are relatively new and their interpretation
and enforcement involve uncertainties, which could limit the legal protection
available to us, and foreign investors, including you. The inability to
enforce or obtain a remedy under any of our future agreements could result in a
significant loss of business, business opportunities or capital and could have a
material adverse impact on our operations.

22

We
must comply with the Foreign Corrupt Practices Act.

We are
required to comply with the United States Foreign Corrupt Practices Act, which
prohibits U.S. companies from engaging in bribery or other prohibited payments
to foreign officials for the purpose of obtaining or retaining business.
Foreign companies, including some of our competitors, are not subject to these
prohibitions. Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices occur from time-to-time in mainland China. If our
competitors engage in these practices, they may receive preferential treatment
from personnel of some companies, giving our competitors an advantage in
securing business or from government officials who might give them priority in
obtaining new licenses, which would put us at a disadvantage. Although we
inform our personnel that such practices are illegal, we have not established
formal policies or procedures for prohibiting or monitoring this conduct, and we
can not assure you that our employees or other agents will not engage in such
conduct for which we might be held responsible. If our employees or other
agents are found to have engaged in such practices, we could suffer severe
penalties.

If
we make equity compensation grants to persons who are PRC citizens, they may be
required to register with SAFE. We may also face regulatory uncertainties
that could restrict our ability to adopt equity compensation plans for our
directors and employees and other parties under PRC laws.

On April
6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic
Individuals Participating in the Employee Stock Ownership Plan or Stock Option
Plan of An Overseas Listed Company, also know as “Circular 78.” It is
not clear whether Circular 78 covers all forms of equity compensation plans or
only those which provide for the granting of stock options. For any plans which
are so covered and are adopted by a non-PRC listed company, such as our company,
after April 6, 2007, Circular 78 requires all participants who are PRC citizens
to register with and obtain approvals from SAFE prior to their participation in
the plan. In addition, Circular 78 also requires PRC citizens to register
with SAFE and make the necessary applications and filings if they participated
in an overseas listed company’s covered equity compensation plan prior to April
6, 2007. We believe that the registration and approval requirements
contemplated in Circular 78 will be burdensome and time consuming.

In the
future, we may adopt an equity incentive plan and make numerous stock option
grants under the plan to our officers, directors and employees, some of whom are
PRC citizens and may be required to register with SAFE. If it is
determined that any of our equity compensation plans are subject to Circular 78,
failure to comply with such provisions may subject us and participants of our
equity incentive plan who are PRC citizens to fines and legal sanctions and
prevent us from being able to grant equity compensation to our PRC employees. In
that case, our ability to compensate our employees and directors through equity
compensation would be hindered and our business operations may be adversely
affected.

23

Due
to various restrictions under PRC laws on the distribution of dividends by our
PRC operating companies, we may not be able to pay dividends to our
stockholders.

The
Wholly-Foreign Owned Enterprise Law (1986), as amended and the Wholly-Foreign
Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law
of the PRC (2006) contain the principal regulations governing dividend
distributions by wholly foreign owned enterprises. Under these regulations,
wholly foreign owned enterprises, such as WFOE, may pay dividends only out of
their accumulated profits, if any, determined in accordance with PRC accounting
standards and regulations. Additionally, WFOE is required to set aside a certain
amount of their accumulated profits each year, if any, to fund certain reserve
funds. These reserves are not distributable as cash dividends except in
the event of liquidation and cannot be used for working capital
purposes.

Furthermore,
if our consolidated subsidiaries in China incur debt on their own in the future,
the instruments governing the debt may restrict its ability to pay dividends or
make other payments. If we or our consolidated subsidiaries are unable to
receive all of the revenues from our operations due to these contractual or
dividend arrangements, we may be unable to pay dividends on our common
stock.

We
may have difficulty establishing adequate management, governance, legal and
financial controls in the PRC.

The PRC
historically has been deficient in western style management, governance and
financial reporting concepts and practices, as well as in modern banking, and
other control systems. Our current management has little experience with
western style management, governance and financial reporting concepts and
practices, and we may have difficulty in hiring and retaining a sufficient
number of qualified employees to work in the PRC. As a result of these
factors, and especially given that we expect to be a publicly listed company in
U.S. and subject to regulation as such, we may experience difficulty in
establishing management, governance legal and financial controls, collecting
financial data and preparing financial statements, books of account and
corporate records and instituting business practices that meet western
standards. We may have difficulty establishing adequate management,
governance, legal and financial controls in the PRC. Therefore, we may, in
turn, experience difficulties in implementing and maintaining adequate internal
controls as required under Section 404 of the Sarbanes-Oxley Act of 2002 and
other applicable laws, rules and regulations. This may result in
significant deficiencies or material weaknesses in our internal controls which
could impact the reliability of our financial statements and prevent us from
complying with SEC rules and regulations and the requirements of the
Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of
compliance could have a materially adverse effect on our business and the public
announcement of such deficiencies could adversely impact our stock
price.

It
may be difficult to protect and enforce our intellectual property rights under
PRC laws.

Intellectual
property rights in China are still developing, and there are uncertainties
involved in the protection and the enforcement of such rights. We will
need to pay special attention to protecting our intellectual property and trade
secrets. Failure to do so could lead to the loss of a competitive
advantage that could not be compensated by our damages award.

24

If
our land use rights are revoked, we would have no operational
capabilities.

Under
Chinese law land is owned by the state or rural collective economic
organizations. The state issues to tenants the rights to use property. Use
rights can be revoked and the tenants forced to vacate at any time when
redevelopment of the land is in the public interest. The public interest
rationale is interpreted quite broadly and the process of land appropriation may
be less than transparent. Through our operating subsidiary Bohai, we rely
on these land use rights as the cornerstone of our operations for both our
manufacturing facility and our corporate headquarters. The loss of such
rights would have a material adverse effect on our company as we would be
required to relocate our facilities and obtain new land use rights, and there is
a risk that we would not be able to accomplish such a relocation with reasonable
cost or at all.

In
addition, we currently do not maintain a land use right certificate for a piece
of land located in Xingfu Twelve Village of Zhifu District with the area of
11,222 square meters, on which we have built our corporate headquarters.
In the process of the planning of Yantai City, the usage of this land use right
has been changed from “industrial use” to “commercial use” and therefore, the
process for the land use right certificate on five relevant parcels of land
including the land occupied by Bohai is suspended until the completion of the
planning. We can not assure you that we will eventually obtain the land
use right certificate for this land with reasonable cost.

Risks
Related to Our Common Stock

Trading
in our common stock has been extremely limited, so investors may not be able to
sell as many of their shares as they want at prevailing prices.

Our
common stock is listed for quotation on OTCBB under the symbol “BOHP.OB”, but
trading in our common stock has been extremely limited. Trading in our
common stock may not fully commence for a variety of reasons, and even trading
does commence, it is expected to continue to be limited. If limited
trading in the common stock continues, it may be difficult for investors to sell
such shares in the public market at any given time at prevailing prices.
Also, the sale of a large block of common stock, should it occur, could depress
the market price of the common stock to a greater degree than a company that
typically has a higher volume of trading of its securities.

The
registration statement of which this prospectus forms a part may not remain
effective, which could impact the liquidity of our common stock.

Under the
terms of our January 2010 Registration Rights Agreement, we are obligated to
include the shares of common stock underlying the Notes and Warrants in an
effective registration statement, an the registration statement of which this
prospectus forms a part is intended to satisfy these obligations. From
time to time, it will be necessary for us to file post-effective amendments to
the registration statement when subsequent events so require. We intend to
use our best efforts to keep the registration statement current, but may not be
able to do so. If the registration statement is not current in the future,
investors’ ability to sell the shares of common stock underlying the Notes and
Warrants will be limited, which would have a material adverse effect on the
liquidity of our common stock.

There
is currently extremely limited trading in our common stock, and the limited
public trading market that may develop in the future may cause extreme
volatility in our stock price.

Although
our common stock is listed for quotation on the OTCBB, there has been extremely
limited trading in our stock. Even if a market for our common stock does
develop, there is a risk that a meaningful, consistent and liquid trading market
may not develop. Moreover, stocks with limited trading markets have
historically experienced extreme price and volume fluctuations and have
particularly affected the market prices of many smaller companies like us.
Our common stock is thus expected to be subject to significant volatility when
and if trading commences. Sales of substantial amounts of our common
stock, or the perception that such sales might occur, could adversely affect
prevailing market prices of our common stock.

25

An
active and visible trading market for our common stock may not
develop.

We cannot
predict whether an active market for our common stock will develop in the
future. In the absence of an active trading market:

·

Investors
may have difficulty buying and selling or obtaining market
quotations;

·

Market
visibility for our common stock may be limited;
and

·

A
lack of visibility for our common stock may have a depressive effect on
the market price for our common
stock.

The OTCBB
is an unorganized, inter-dealer, over-the-counter market that provides
significantly less liquidity than NASDAQ or the NYSE AMEX. The trading
price of the common stock is expected to be subject to significant fluctuations
in response to variations in quarterly operating results, changes in analysts’
earnings estimates, announcements of innovations by us or our competitors,
general conditions in the industry in which we operate and other factors.
These fluctuations, as well as general economic and market conditions, may have
a material or adverse effect on the market price of our common
stock.

The
market price for our stock may be volatile.

The
market price for our stock may be volatile and subject to wide fluctuations in
response to factors including the following:

changes
in the economic performance or market valuations of other pharmaceutical
companies;

·

announcements
by us or our competitors of new products, acquisitions, strategic
partnerships, joint ventures or capital
commitments;

·

addition
or departure of key personnel;

·

fluctuations
of exchange rates between RMB and the U.S.
dollar;

·

intellectual
property or other litigation; and

·

general
economic or political conditions in
China.

In
addition, the securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may also materially and
adversely affect the market price of our stock.

26

The
accounting treatment for our convertible securities is complex and subject to
judgments concerning the valuation of embedded derivative rights within the
applicable securities. Fluctuations in the valuation of these rights could
cause us to take charges to our earnings and make our financial results
unpredictable.

Our Notes
and Warrants issued in January 2010 contain, or may be
deemed to contain from time to time, embedded
derivative rights in accordance with GAAP. These derivative rights, or
similar rights in convertible securities we may issue in the future, need to be,
or may need to be, separately valued as of the end of each accounting period in
accordance with GAAP. Changes in the valuations of these rights, the
valuation methodology or the assumptions on which the valuations are based could
cause us to take charges to our earnings, which would adversely impact our
results of operations. Moreover, the methodologies, assumptions and
related interpretations of accounting or regulatory authorities associated with
these embedded derivatives are complex and in some cases uncertain, which could
cause our accounting for these derivatives, and as a result, our financial
results, to fluctuate. There is a risk that questions could arise from
investors or regulatory authorities concerning the appropriate accounting
treatment of these instruments, which could require us to restate previous
financial statements, which in turn could adversely impact our results of
operations, our reputation and our public stock price.

Shares
eligible for future sale may adversely affect the market price of our common
stock, as the future sale of a substantial amount of outstanding stock in the
public marketplace could reduce the price of our common stock.

Pursuant
to the terms of the Registration Rights Agreement and Securities Purchase
Agreement, we agreed to file the registration statement of which this prospectus
forms a part with the SEC to register the common stock underlying the Notes,
Warrants and Placement Agent Warrants for public resale. All of such
shares may be freely sold and transferred following conversion or exercise of
the Notes and Warrants if such registration statement remains effective.
Additionally, concurrently with the closing of the Private Placement, we engaged
in a Share Exchange, and following the Share Exchange, the former shareholders
of Chance High (other than Glory Period) may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in the
open market pursuant to such registration statement or SEC Rule 144, subject to
certain limitations. In general, pursuant to Rule 144, a stockholder (or
stockholders whose shares are aggregated) who has satisfied an one-year holding
period may, under certain circumstances, sell within any three-month period a
number of securities which does not exceed the greater of 1% of the then
outstanding shares of common stock or the average weekly trading volume of the
class during the four calendar weeks prior to such sale. As of the closing
of the Share Exchange, and not accounting for the private placement, 1% of our
issued and outstanding shares of common stock equals approximately162,500
shares. Rule 144 also permits, under certain circumstances, the sale of
securities, without any limitations, by a non-affiliate that has satisfied a
one-year holding period. Any substantial sale of common stock pursuant to
any resale prospectus or Rule 144 may have an adverse effect on the market price
of our common stock by creating an excessive supply.

Our
controlling stockholder, Glory Period Limited, owns approximately 55% of our
outstanding common stock as of the closing of the Share Exchange. Tan is
the sole shareholder of Glory Period and Qu is the sole director of Glory
Period. Either Tan or Qu has a controlling influence in determining the
outcome of any corporate transaction or other matters submitted to our
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets, election of directors, and other significant
corporate actions. Tan and Qu may also have the power to prevent or cause
a change in control. In addition, without the consent of Tan and Qu, we
could be prevented from entering into transactions that could be beneficial to
us. As Qu serves as our principal executive officer and Tan has provided
consulting services to Bohai in the past, the interests of Tan and Qu may differ
from the interests of our other stockholders, which could create conflicts of
interest and the potential for approval of actions which may not be in the best
interests of all of our stockholders.

27

Compliance
with complex and changing regulation of corporate governance and public
disclosure, and our management’s inexperience with such regulations, will result
in additional expenses and creates a risk of non-compliance.

Changing
laws, regulations and standards relating to corporate governance and public
legal and accounting disclosure, including the Sarbanes-Oxley Act of 2002 and
related SEC regulations, have created uncertainty for public companies and
significantly increased the costs and risks associated with accessing the public
markets and public reporting. Our management team will need to invest
significant management time and financial resources to comply with both existing
and evolving standards for public companies, which will lead to increased
general and administrative expenses and a diversion of management time and
attention from revenue generating activities to compliance activities. In
addition, our management located in the PRC has little experience with
compliance with U.S. laws (including securities laws). This inexperience
may cause us to fall out of compliance with applicable regulatory requirements,
which could lead to restatements of our financial statements, breaches of
covenants in our investor agreements, regulatory enforcement actions against us
and a negative impact on our stock price and our business
generally.

The
challenges we have with properly complying with applicable disclosure and
accounting regulations were evidenced when we were required to restate our
financial statements for the period ended March 31, 2010 to account for the
embedded derivative liabilities associated with Notes and Warrants. There
is a risk that we will face similar challenges in the future.

If
we fail to maintain an effective system of internal controls, we may not be able
to accurately report our financial results or prevent fraud.

We are
subject to reporting obligations under the U.S. securities laws. The SEC,
as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
requiring every public company to include a management report on such company’s
internal controls over financial reporting in its annual report, which contains
management’s assessment of the effectiveness of our internal controls over
financial reporting. In addition, we may be required to have an
independent registered public accounting firm attest to and report on
management’s assessment of the effectiveness of our internal controls over
financial reporting. Our management may conclude that our internal
controls over our financial reporting are not effective. Moreover, even if
our management concludes that our internal controls over financial reporting are
effective, our independent registered public accounting firm may still decline
to attest to our management’s assessment or may issue a report that is qualified
if it is not satisfied with our controls or the level at which our controls are
documented, designed, operated or reviewed, or if it interprets the relevant
requirements differently from us. Our reporting obligations as a public
company will place a significant strain on our management, operational and
financial resources and systems for the foreseeable future. Effective
internal controls, particularly those related to revenue recognition, are
necessary for us to produce reliable financial reports and are important to
prevent fraud. As a result, our failure to achieve and maintain effective
internal controls over financial reporting could result in the loss of investor
confidence in the reliability of our financial statements, which in turn could
harm our business and negatively impact the trading price of our stock.
Furthermore, we anticipate that we will incur considerable costs and use
significant management time and other resources in an effort to comply with
Section 404 and other requirements of the Sarbanes-Oxley Act.

28

Our
common stock may be considered a “penny stock,” and thereby be subject to
additional sale and trading regulations that may make it more difficult to
sell.

Our
common stock, which is currently and will be quoted for trading on OTCBB, may be
considered to be a “penny stock” if it does not qualify for one of the
exemptions from the definition of “penny stock” under Section 3a51-1 of the
Exchange Act, as amended. Our common stock may be a “penny stock” if it
meets one or more of the following conditions: (i) the stock trades at a price
less than $5 per share; (ii) it is NOT traded on a “recognized” national
exchange; (iii) it is not quoted on the Nasdaq Capital Market, or even if so,
has a price less than $5 per share; or (iv) is issued by a company that has been
in business less than three years with net tangible assets less than $5
million. The principal result or effect of being designated a “penny
stock” is that securities broker-dealers participating in sales of our common
stock will be subject to the “penny stock” regulations set forth in Rules 15-2
through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2
requires broker-dealers dealing in penny stocks to provide potential investors
with a document disclosing the risks of penny stocks and to obtain a manually
signed and dated written receipt of the document at least two business days
before effecting any transaction in a penny stock for the investor’s
account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to: (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor’s financial
situation, investment experience and investment objectives. Compliance
with these requirements may make it more difficult and time consuming for
holders of our common stock to resell their shares to third parties or to
otherwise dispose of them in the market or otherwise.

We
do not foresee paying cash dividends in the foreseeable future and, as a result,
our investors’ sole source of gain, if any, will depend on capital appreciation,
if any.

We do not
plan to declare or pay any cash dividends on our shares of common stock in the
foreseeable future and currently intend to retain any future earnings for
funding growth. As a result, investors should not rely on an investment in our
securities if they require the investment to produce dividend income. Capital
appreciation, if any, of our shares may be investors’ sole source of gain for
the foreseeable future. Moreover, investors may not be able to resell their
common stock at or above the price they paid for them.

29

CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of
the statements contained in this prospectus that are not historical facts are
“forward-looking statements” which can be identified by the use of terminology
such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,”
“intends,” or the negative or other variations, or by discussions of strategy
that involve risks and uncertainties. We urge you to be cautious of the
forward-looking statements, that such statements, which are contained in this
Registration Statement, reflect our current beliefs with respect to future
events and involve known and unknown risks, uncertainties and other factors
affecting our operations, market growth, services and products. No
assurances can be given regarding the achievement of future results, as actual
results may differ materially as a result of the risks we face, and actual
events may differ from the assumptions underlying the statements that have been
made regarding anticipated events. Factors that may cause actual results,
our performance or achievements, or industry results, to differ materially from
those contemplated by such forward-looking statements include without
limitation:

·

our
financial position, business strategy and other plans and objectives for
future operations;

·

the
ability of our management team to execute its plans to meet its
goals;

·

our
ability to attract and retain qualified management
personnel;

·

our
growth strategies;

·

anticipated
trends in our business;

·

our
ability to consummate or integrate
acquisitions;

·

our
liquidity and ability to finance our operations and acquisition and
development activities;

All
written and oral forward-looking statements made in connection with this
prospectus that are attributable to us or persons acting on our behalf are
expressly qualified in their entirety by these cautionary statements.
Given the uncertainties that surround such statements, you are cautioned not to
place undue reliance on such forward-looking statements.

USE
OF PROCEEDS

This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by the selling stockholders named herein. There will be
no proceeds to us from the sale of shares of common stock in this
offering.

We will
not receive any proceeds from the sale of shares by the selling stockholders
other than the exercise price of any Warrants and Placement Agent Warrants that
are exercised by the applicable selling stockholders, the proceeds of which we
expect to use for our general working capital. If all of these Warrants
and Placement Agent Warrants are exercised for cash, then we will receive gross
proceeds of $15,840,000. No assurances can be given, however, that all or
any portion of such warrants will ever be exercised.

DETERMINATION
OF OFFERING PRICE

The
selling stockholders may sell these shares in the over-the-counter market or
otherwise, at market prices prevailing at the time of sale, at prices related to
the prevailing market price, or at negotiated prices. We will not receive
any proceeds from the sale of shares by the selling stockholders but we may
receive proceeds upon the exercise, if any, of the Warrants and Placement Agent
Warrants.

31

MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS

AND
RESULTS OF OPERATIONS

The
following discussion and analysis of financial condition and results of
operations relates to the operations and financial condition reported in the
unaudited condensed consolidated financial statements of the Company for the
three months ended March 31, 2010 and 2009, and for the fiscal years ended June
30, 2009 and 2008, and should be read in conjunction with the related audited
and unaudited financial statements and related notes included in this
prospectus. Those statements in the following discussion that are not
historical in nature should be considered to be forward looking statements that
are inherently uncertain. Actual results and the timing of the events may differ
materially from those contained in these forward looking statements due to a
number of factors, including those discussed in the “Cautionary Note on Forward
Looking Statements” set forth elsewhere in this prospectus.

Overview

We were
incorporated under the laws of the State of Nevada on January 9, 2008. Since
January 5, 2010, our business consists of the production, manufacturing and
distribution of herbal pharmaceuticals in the PRC which are based on traditional
Chinese medicine. We are based in the city of Yantai, Shandong Province,
China.

Prior to
January 5, 2010, we were a public “shell” company operating under the name “Link
Resources, Inc.” On January 5, 2010, we consummated a share exchange transaction
(the “Share Exchange”) pursuant to which we acquired Chance High, the parent
company of Yantai Bohai Pharmaceuticals Group Co. Ltd., our principal operating
subsidiary, which is a Chinese variable interest entity that we (through a
Chinese wholly-owned foreign enterprise subsidiary) control through certain
contractual arrangements.

Use
of Estimates

In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting periods. These accounts and estimates include, but are not limited to,
the valuation of accounts receivable, inventories, deferred income taxes,
derivative liabilities, and the estimation of useful lives of property, plant
and equipment. Actual results could differ from those estimates.

Accounts
Receivable

Accounts
receivable consists of amounts due from customers. We extend unsecured credit to
our customers in the ordinary course of business but mitigate the associated
risks by performing credit checks and actively pursuing past due accounts. An
allowance for doubtful accounts is established and determined based on
management’s assessment of known requirements, aging of receivables, payment
history, the customer’s current credit worthiness and the economic
environment.

32

Revenue
recognition

Revenue
represents the invoiced value of goods sold recognized upon the delivery of
goods to customers. Revenue is recognized when all of the following criteria are
met:

·

Persuasive
evidence of an arrangement exists;

·

Delivery
has occurred or services have been rendered;

·

The
seller’s price to the buyer is fixed or determinable; and

·

Collectability
is reasonably assured. Payments have been established.

Inventories

Inventories
are valued at the lower of cost or market with cost is determined on the
weighted average method. Finished goods inventories consist of raw materials,
direct labor and overhead associated with the manufacturing process. In
assessing the ultimate realization of inventories, management makes judgments as
to future demand requirements compared to current or committed inventory levels.
Our reserve requirements generally increase or decrease due to management’s
projected demand requirements, market conditions and product life cycle changes.
As of March 31, 2010 and June 30, 2009, we did not make any allowance for
slow-moving or defective inventories.

Property,
plant and equipment

Property,
plant and equipment, other than construction in progress, are stated at cost,
less depreciation and amortization and accumulated impairment loss. Cost
represents the purchase price of the asset and other costs incurred to bring the
asset into its existing use. Maintenance, repairs and betterments, including
replacement of minor items, are charged to expense; major additions to physical
properties are capitalized.

Depreciation
of property, plant and equipment is calculated to written off the cost, less
their estimated residual value, if any, using the straight-line method over
their estimated useful lives. The principal annual rates are as
follows:

Leas
ehold land and buildings

30
to 40 years

Motor
vehicles

10
years

Plant
and machinery

10
years

Office
equipment

5
years

Upon sale
or disposition, the applicable amounts of asset cost and accumulated
depreciation are removed from the accounts and the net amount less proceeds from
disposal is charged or credited to income.

Construction
in progress primarily represents costs incurred to construct the Group’s
corporate campus and machinery under construction. The corporate campus
was completed and at began production in 2009. Assets under construction
are not depreciated until the construction is completed and the assets are ready
for their intended use.

33

Income
Taxes

Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards. Deferred tax assets are reduced by a
valuation allowance to the extent management concludes it is more likely than
not that the assets will not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the statements of income and comprehensive income in the
periods that includes the enactment date.

Operating
Results

Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009

Three Months Ended

March 31,

2010

2009

(unaudited)

RESTATED

(unaudited)

Sales

$

15,323,878

$

12,476,400

Less:
Sales Tax

(231,870

)

(200,622

)

Net
sales

15,092,008

12,275,778

Cost
of sales

(2,609,515

)

(2,019,864

)

Gross
profit

12,482,493

10,255,914

Selling,
general and administrative expenses

(9,202,873

)

(7,670,130

)

Interest
expenses

(381,700

)

(52,921

)

Operating
income

2,897,920

2,532,863

Other
income

-

158

Finance
and non-operating incomes (expenses)

829,773

(4,618

)

Income
before taxes

3,727,693

2,528,403

Income
taxes

(585,135

)

(423,569

)

Net
income

$

3,142,558

$

2,104,834

Sales

Net sales
for the three months ended March 31, 2010 increased by approximately $2,816,230,
or 22.94%, to $15,092,008 as compared to $12,275,778 for the three months ended
March 31, 2009. This increase was primarily due to the significant
increase of our revenue on all the products as a result of the marketing
strategy we implemented during the three months ended March 31, 2010.

Cost
of Sales

Our cost
of sales for the three months ended March 31, 2010 was $ 2,609,515 as compared
to $2,019,864 for the three months ended March 31, 2009, representing an
increase of 29.19%. The increase was mainly attributable to the
increase in cost of raw material by $265,960 as a result of the increase of
sales.

Gross
Profit

We achieved
gross profit of $12,482,493 for the three months ended March 31, 2010, compared
to $10,255,914 for the same quarter of the previous year, representing a 21.71 %
quarter to quarter increase. Our overall gross profit margin as a
percentage of revenue are 82.71% and 83.30% for the three months ended March 31,
2010 and 2009, respectively.

34

Selling,
General and Administrative Expenses

Our
operating expenses, consisting of selling, general and administrative expenses,
increased by approximately $1,532,743, to $9,202,873, for the three months ended
March 31, 2010, from $7,670,130 for the same quarter of the previous year.
This increase was mainly attributable to an increase of advertising expense and
sales conferences this quarter compared to the same quarter last year. We
increased product promotion activities through various media, especially through
television advertising in different provinces within the PRC during the quarter
compared to the same quarter last year.

Interest
Expense

Interest
expense was $381,700 for the three months ended March 31, 2010, compared to
$52,921 for the three months ended March 31, 2009, an increase of $328,779.
The increase was principally due to effective interest charge of $347,793 on
convertible notes issued in connection with a private placement on January 5,
2010.

Finance
and Non-Operating Income (Expenses)

Finance and
non-operating income was $829,773 for the period ended March 31, 2010
compared to non-operating expenses of $4,618 from the same quarter last year, an
increase of income of $834,391. The increase was principally due to
non-cash income of $1,083,350 associated with a change in fair
value of warrants, and amortization of deferred fees of $253,577 in connection
with our private placement on January 5, 2010.

Income
Tax

Our
provisions for income taxes for the three months ended March 31, 2010 and 2009
were $585,135 and $423,569, an increase of $161,566 or 38.14% from period to
period. Certain corporate expenses such as amortization of financing cost,
changes in derivative liabilities, and effective interest charges on convertible
note were permanently excluded from Chinese income tax calculations. If
such non-taxable expenses were excluded, the ratios between provisions for
income taxes and income before tax solely generated from Bohai, our operating
company in China, would be 18.03% and 16.75%, respectively for the three months
ended March 31, 2010 and 2009.

Net
Income

We had a
net income of $3,142,558 for the three months ended March 31, 2010, as compared
to net income of $2,104,834 for the three months ended March 31, 2009,
an increase in net income of $1,037,724. The increase in net income
was primarily attributable to incomes from non-operating incomes related to
non-cash activities on fair value measurement of $1,083,350 for our warrants
offset by effective interest charge of $347,793 and amortization of
deferred fees of $253,577 in connection with our private placement and
share exchange transactions that occurred in the quarter ended March 31,
2010. The increase was also attributed by increase in total gross
profit and offset by increase in advertising expenses this quarter compared
to the same quarter last year.

The
following table sets forth our statement of operations for the period
indicated:

35

Nine Months Ended

March 31,

2010

2009

(unaudited)

RESTATED

(unaudited)

Sales

$

46,072,455

$

35,833,215

Less:
Sales Tax

(729,975

)

(580,207

)

Net
sales

45,342,480

35,253,008

Cost
of sales

(7,475,740

)

(5,966,876

)

Gross
profit

37,866,740

29,286,132

Selling,
general and administrative expenses

(28,208,753

)

(21,675,279

)

Interest
expenses

(538,008

)

(168,422

)

Operating
income

9,119,979

7,442,431

Non-operating
income

18,864

158

Finance
and non-operating incomes (expenses)

807,681

(4,682

)

Income
before taxes

9,946,524

7,437,907

Income
taxes

(2,193,931

)

(1,224,833

)

Net
income

$

7,752,593

$

6,213,074

Sales

Net sales
for the nine months ended March 31, 2010 was $45,342,480, an increase of
approximately $10,089,472, or 28.62%, from $35,253,008 in the nine months ended
March 31, 2009. This increase was primarily due to the significant increase of
our revenue on all the products as a result of the marketing strategy we have
implemented since the calendar year ended December 31, 2009.

Cost
of Sales

Our cost
of sales for the nine months ended March 31, 2010 was $7,475,740 as compared to
$5,966,876 for the nine months ended March 31, 2009, representing an increase of
$1,508,864, or 25.28%. The increase was mainly attributable to the increase of
raw materials cost by $1,033,246 as a result of the increase of
sales.

Gross
Profit

For the
nine months ended March 31, 2010 as compared to the nine months ended March 31,
2009, we generated gross profit of $37,866,740 and $29,286,132, respectively,
reflecting an increase of approximately $8,580,608, or 29.30%. The increase in
our gross profit was mainly due to significantly increase of sales
income.

Selling,
General and Administrative Expenses

We incurred
general and administrative expenses of $28,208,753 for the nine months ended
March 31, 2010, representing an increase of $6,533,474, or 30.14%, compared to
$21,675,279 for the nine months ended March 31, 2009. This increase was mainly
due to the increase of costs of advertising and sales conferences throughout
China.

36

Interest
Expense

Interest
expense was $538,008 for the nine months ended March 31, 2010, compared to
$168,422 for the nine months ended March 31, 2009, an increase of
$369,586. The increase was principally due to effective interest charge of
$347,793 on convertible notes issued in connection with a private placement on
January 5, 2010.

Finance
and Non-Operating Incomes (expenses)

Finance
and non-operating income was $807,681 for the nine months ended March 31,
2010 compared to non-operating expenses of $4,682 for the nine months ended
March 31, 2009, an increase of non-operating incomes of $812,363. The
increase was principally due to non-cash income of $1,083,350 associated
with a change in fair value of warrants and amortization of deferred fees
of $253,577 in connection with our private placement on January 5, 2010.

Income
Tax

For the
nine months ended March 31, 2010 and 2009, income tax expenses were $2,193,931
and $1,224,833 respectively, representing an increase of $969,098, or 79.12%.
Certain corporate expenses such as amortization of financing cost, changes in
fair value of warrants, and effective interest charges on convertible note were
permanently excluded from Chinese income tax calculations. If such non-taxable
expenses were excluded, the income tax expenses would represent 23.04% and
16.46% of the operating income before taxes generated from our major operating
subsidiary, Bohai, for the nine months ended March 31, 2010 and 2009,
respectively. The increase was mainly due to an increase of income before tax
generated from our Bohai subsidiary for the period ended March 31, 2010 compared
to the period ended March, 31, 2009, as well as an under estimate of tax
expenses for the nine months ended on March 31, 2009 compared to the same
periods in 2010.

Net
Income

We had
net income of $7,752,593, or 17.10% of net revenue, for the nine months ended
March 31, 2010, as compared to net income $6,213,074, or 17.62% of net revenue,
for the nine months ended March 31, 2009, representing an increase of
$1,539,519. The increase was attributed by increase in total gross profit offset
by increase in advertising expenses, certain non-cash charges related to
effective interest of $347,793, non-cash incomes of changes in fair value
of warrants of $1,083,350, and amortization of deferred fees of $253,577 in
connection with our private placement and share exchange transactions that
occurred in the quarter ended March 31, 2010.

Liquidity
and Capital Resources

We have
historically funded our operation primarily through paid-in capital, sales of
goods and short term loans from financial institutions in China. Net increase in
cash for the three months ended March 31, 2010 was $7,883,867 compared to net
increase in cash of $1,729,968 for the three months ended March 31, 2009. During
the three months ended March 31, 2010, net cash used from operating activities
was $2,449,103. Cash payments to placement agent and other financing costs were
$1,570,000. Cash borrowed from bank and investors amounted to $4,381,153 and
$12,000,000 respectively and repayment of borrowing from previous period
amounted to $4,393,665, which resulted in a net cash inflow from financing
activities of $10,417,488 and a total net increase in cash of $7,883,867. We may
seek to raise additional capital through sales of common stock, as well as
seeking financing from third parties.

37

Operating
activities

For the
three months ended March 31, 2010, cash used in operating activities totaled
$2,449,103 compared to cash provided by operating activities of $2,503,932 for
the three months ended March 31, 2009. The decrease on net cash provided in
operating activities was primarily attributable to cash used in prepayment for
other payable and accrued liabilities during the three month ended March 31,
2010.

Investing
activities

For the
three months ended March 31, 2010, net cash outflow for investing activities was
approximately $84,518 compared to net cash used by investing activities of
$191,977 in the three months ended March 31, 2009. This decrease on net cash
used by investing activities was primarily attributable to decrease on cash used
for purchase of property plant and equipment during the period.

Financing
activities

Financing
activities provided net cash inflow of $10,417,488 during the three months ended
March 31, 2010. The net cash inflow was primarily as a result of issue of
convertible promissory notes during the period. As of March 31, 2010, cash
payments to placement agent and other financing costs were $1,570,000. The
proceeds from short-term borrowings and convertible promissory notes amounted to
$4,381,153 and $12,000,000 respectively and the repayment of borrowings amounted
to $4,393,665 resulted in a net cash inflow by financing activities of
$10,417,488.

Off-Balance
Sheet Arrangements

We did
not engage in any “off-balance sheet arrangements” (as that term is defined in
Item 303(a)(4)(ii) of Regulation S-K) during the three months ended March 31,
2010. We have not entered into any financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
stockholder’s equity or that are not reflected in our condensed consolidated
financial statements. Furthermore, we do not have any retained or contingent
interest in assets transferred to an unconsolidated entity that serves as
credit, liquidity or market risk support to such entity. We do not have any
variable interest in any unconsolidated entity that provides financing,
liquidity, market risk, or credit support to us or engages in leasing, hedging,
or research and development services with us.

Inflation

In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation. During the past ten years, the rate of inflation in China
has been as high as 20.7% and as low as -2.2%. These factors have led to the
adoption by Chinese government, from time to time, of various corrective
measures designed to restrict the availability of credit or regulate growth
and contain inflation. While inflation has been more moderate since 1995, high
inflation may in the future cause Chinese government to impose controls on
credit and/or prices, or to take other action, which could inhibit economic
activity in China, and thereby harm the market for our
products.

38

Fiscal
Year Ended June 30, 2009 Compared to the Fiscal Year Ended June 30,
2008

The
following table sets forth our statement of operations for the period
indicated:

Year Ended

June 30, 2009

Year Ended

June 30, 2008

Sales

$

50,170,014

$

38,172,513

Less:
Sales Tax

(821,400

)

(629,489

)

Net
sales

49,348,614

37,543,024

Cost
of sales

(7,975,267

)

(5,950,680

)

Gross
profit

41,373,347

31,592,344

Selling,
general and administrative expenses

(31,347,139

)

(22,608,164

)

Interest
expenses

(184,404

)

(234,101

)

Operating
income

9,841,804

8,750,079

Non-operating
income

49,447

8

Non-operating
costs

(36,366

)

(835

)

Income
before taxes

9,854,885

8,749,252

Income
taxes

(1,906,985

)

(2,303,712

)

Net
income

$

7,947,900

$

6,445,540

Gross
Profit

For the
fiscal year ended June 30, 2009 as compared to the fiscal year ended June 30,
2008, we generated gross profit of $41,373,347 and $31,592,344 respectively,
reflecting an increase of approximately $9,781,003, or 30.96%. The increase in
our gross profit was mainly due to significantly increase of sales
income.

Selling,
General and Administrative Expenses

We
incurred general and administrative expenses of $31,347,139 for the fiscal year
ended June 30, 2009, representing an increase of $8,738,957, or 38.65%, compared
to 22,608,164 for the fiscal year ended June 30, 2008. This increase was mainly
due to the increase of cost of advertising and percentages of commissions to
sales representative allocated in branch office through out China.

Interest
Expense

Interest
expense was $184,404 for the fiscal year ended June 30, 2009, compared to
$234,101 for the fiscal year ended June 30, 2008. The decrease was largely
due to repayment of bank loans utilized in the year 2007 during the period.
The loans were used for working capital and capital expenditures for the
expansion of production through acquisition of production plants and equipment
to improve the efficiency of production.

39

Income
tax

For the
fiscal year ended June 30, 2009, income tax expense was $1,906,985, a decrease
of $396,727, or 17.22%, from $2,303,712 for the fiscal year ended June 30, 2008.
The decrease was mainly due to the decrease of enterprise income tax in PRC from
33% to 25% since January 1, 2008.

Net
Income

We had
net income of $7,947,900, or 16.11% of net revenue for the fiscal year ended
June 30, 2009 as compared to net income of $6,445,540 or 17.17% of net revenue
for the fiscal year ended June 30, 2008, representing an increase of $1,502,360,
or 23.31%. The increase in our net income was the result of the significant
increase of our revenue generated in the fiscal year of 2009

Liquidity
and Capital Resources

We have
historically funded our operation primarily through paid-in capital, sales of
goods and short term loans from financial institutions. Net cash used in
operating activities for the year ended June 30, 2009 was $1,513,062 compared to
net cash provided in operating activities of $2,359,072 for the year ended June
30, 2008. During the year ended June 30, 2009, cash borrowed from banks amounted
to $5,860,000 and repayment of borrowing from previous years amounted to
$1,896,700, which resulted in a net cash inflow in financing activities of
$3,963,300. Management is planning to raise additional capital through
sales of common stock, as well as seeking financing from third
parties.

Operating
activities

For the
fiscal year ended June 30, 2009, net cash used in operating activities totaled
$1,513,062 compared to net cash provided by operating activities of $2,359,072
for the fiscal year ended June 30, 2008. This decrease was primarily
attributable to a significant increase of cash used in prepayment for
advertising expense and repayment of accounts payable.

Investing
activities

For the
fiscal year ended June 30, 2009, net cash outflow for investing activities was
approximately $788,993 compared to net cash outflow for investing activities of
$80,647 in the fiscal year ended June 30, 2008. This increase was primarily
attributable to significant increase of capital investment in acquisition of
property, plant and equipment during the year. During the fiscal year ended June
30, 2009, we spent $227,690, $59,459, $295,610 and $220,884 on acquisitions of
plant and equipment, purchase of office equipment, purchase of motor
vehicle and construction in progress, respectively.

Financing
activities

Financing
activities provided net cash inflow of $3,963,300 during the fiscal year ended
June 30, 2009. The net cash inflow was primarily as a result of proceeds
of significant borrowing during the year. As of June 30, 2009, the proceeds from
short-term borrowings amounted to $5,860,000 and the repayment of borrowings
amounted to $1,896,700, which resulted in a net cash inflow by financing
activities of $3,963,300.

40

Off-Balance
Sheet Arrangements

We did
not engage in any “off-balance sheet arrangements” (as that term is defined in
Item 303(a)(4)(ii) of Regulation S-K) during the fiscal year ended June 30,
2010. We have not entered into any financial guarantees or other
commitments to guarantee the payment obligations of any third parties. We have
not entered into any derivative contracts that are indexed to our shares and
classified as shareholder’s equity or that are not reflected in our
condensed consolidated financial statements. Furthermore, we do not have any
retained or contingent interest in assets transferred to an unconsolidated
entity that serves as credit, liquidity or market risk support to such entity.
We do not have any variable interest in any unconsolidated entity that provides
financing, liquidity, market risk, or credit support to us or engages in
leasing, hedging, or research and development services with us.

Inflation

In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation. During the past ten years, the rate of inflation in
China has been as high as 20.7% and as low as -2.2%. These factors have
led to the adoption by Chinese government, from time to time, of various
corrective measures designed to restrict the availability of credit or regulate
growth and contain inflation. While inflation has been more moderate since
1995, high inflation may in the future cause Chinese government to impose
controls on credit and/or prices, or to take other action, which could inhibit
economic activity in China, and thereby harm the market for our
products.

41

BUSINESS

Our
Business

We are
engaged in the production, manufacturing and distribution of herbal
pharmaceuticals based on traditional Chinese medicine, or TCM, in the PRC.
We are based in the city of Yantai, Shandong Province, China, and our operations
are exclusively in China.

We
believe our rapid growth in recent years has been supported by the continuing
expansion of the market for TCM in the PRC. This market is forecasted to
reach $24 billion by 2010 according to the Information Office of the State
Council of the People’s Republic of China, “Status Quo of Drug
Supervision.”

In a
significant development, on December 1, 2009, two of our lead products, Tongbi
Capsules and Tablets and Lung Nourishing Cream, became eligible for
reimbursement under China’s National Medical Insurance Program. In fiscal
year ended June 30, 2009, these two products accounted for more than 50% of our
revenues.

The
Chinese government has previously awarded us exclusive rights to manufacture
Tongbi Capsules and we share manufacturing rights with one or more manufacturers
for Shangtongning Tablets and Anti-flu Granules. We held the Certificates
of Protected Variety of Traditional Chinese Medicine (Grade Two) (the
“Certificate of Protection”) issued by State Food and Drug Administration of
China (“SFDA”) for Tongbi Capsules and Shangtongning Tablets which give us
exclusive or near-exclusive rights to manufacture and distribute these two
medicines. The protection periods for both Tongbi Capsules and
Shangtongning Tablets expired in September 2009 and we are seeking to extend the
protection periods. We have submitted the application of Tongbi Capsules
to extend such protection period on March 12, 2009 and SFDA has recently started
its review process. We expect such approval may be granted by end of June
this year. We have decided not to submit extension application of
Shangtongning Tablets, because the SFDA will not approve Certificate of
Protection for Shangtongning Tablets or any other products that are currently
produced by more than three manufacturers in China according to applicable
Chinese SFDA regulations.

As of
August 1, 2010, we had approximately 600 employees, including approximately 300
sales representatives, operating from 20 offices throughout China. More
than 50% of our workforce is engaged in sales and distribution activities.

Our
strategy is to leverage the “protected” status and national insurance coverage
for certain of our pharmaceutical products to aggressively increase market
penetration throughout China, the world’s most populous nation. By
utilizing our distribution platform, in addition to utilizing mass media and
other marketing methods to build awareness of our brand, we will seek
significantly grow our revenues and earnings.

42

We are
placing particular marketing focus on our Lung Nourishing Cream over the next
several years. Lung Nourishing Cream is one of our most popular products,
and its main ingredient, Laiyang Pear, to our knowledge, is not available in
other similar pharmaceutical products. We applied for a patent for Lung
Nourishing Cream with its production method for the treatment of Lung-qi
Deficiency Cough and Chronic Bronchitis, which application was approved by the
State Intellectual Property Office of the PRC on June 23, 2010. For these
reasons, we believe Lung Nourishing Cream contains a novel formulation for the
treatment of asthma and other common respiratory ailments with an emphasis on
the improvement of overall lung function and health. We believe this
represents an exceptional market opportunity.

Our
business strategy will seek to capitalize on new government programs established
in early 2009 to extend health insurance coverage to previously uncovered
Chinese citizens. The PRC government’s new health care policies are also
designed to encourage the use of TCM and its approach to wellness and treatment
of disease. As a result, the government continues to expand the number of
TCMs eligible for reimbursement under national medical insurance programs.
This has resulted in medical professionals working in the state-run medical
facilities to increasingly prescribe and recommend TCM products of the type we
manufacture and market. The state-run facilities provide the majority of
medical care in China. Two of our lead products, Lung Nourishing Cream and
Tongbi Capsules and Tablets, are authorized to be eligible for insurance
coverage, with others expected to follow. Currently public health
officials in China are developing general consumer awareness of increasing
problems and concerns with respiratory and lung health caused by pervasive
national air pollution. This nationwide epidemic is an unfortunate
by-product of the robust development of China’s expansive manufacturing and
industrial activities. Increased air pollution is a cause and contributory
factor to a range of acute respiratory illnesses including chronic conditions
such as asthma. As a result, we intend to significantly increase our
advertising for our Lung Nourishing Cream.

As is not
uncommon for Chinese companies listed in the U.S., we control our Chinese
operating subsidiary, Bohai, pursuant to the VIE Agreements, under which we
assume management of the business activities of Bohai and have the right to
appoint all executives and senior management and the members of the board of
directors of Bohai. Under these arrangements, however, we do not,
directly or indirectly, own any shares in Bohai, which are owned by Mr. Qu, our
Chairman, President and Chief Executive Officer and two unaffiliated
parties.

Overview
of Traditional Chinese Medicine

In China,
Traditional Chinese Medicine is not an alternative form of therapy but is used
in the state-run hospitals alongside modern medicine. For its
practitioners and advocates, TCM is a complete medical system that is used to
treat disease in all its forms. TCM is also believed to promote long
term wellness and vigor. Many modern-day drugs have been developed from herbal
sources. These include drugs designed to treat asthma and hay fever
such as ephedrine; hepatitis remedies from fruits and licorice roots and a
number of anticancer agents from trees and shrubs.

For the
Chinese, however, health is more than just the absence of
disease. Chinese herbal medicine is not only intended to cure but to
enhance the capacity for enjoyment, fulfillment and
happiness. Accordingly, there are herbal drugs that are used to
invigorate, nourish blood, calm tension and regulate menstruation.

The roots
of TCM date back thousands of years and include a number of therapeutic
approaches. These include herbal medications, acupuncture, dietary manipulation,
massage and others. Very early works of Chinese medical literature date back as
much as 2,500 years while other classics appeared approximately 2,000 years ago
during the Han Dynasty. Medicine in China continued to develop throughout the
Middle Ages when emperors commissioned the creation of various scholarly works
that compiled and documented hundreds of medicines derived from herbs, animal
sources and minerals. In addition, these works described their therapeutic uses.
In the 1950s, TCM was further modernized and reformed by the PRC
government.

43

The
emphasis on wellness and the avoidance of disease is considered by some to be a
key distinction between TCM and western medical practice which has been seen as
more heavily oriented toward the treatment of disease and less toward
prevention. While TCM has remained a substantial part of medical
treatment in China and throughout East Asia, recent decades have seen increasing
acceptance throughout the United States, Europe and elsewhere. This
growth is, in part, driven by increasingly educated and empowered consumers of
medical care who seek organic, natural and alternative approaches to western
medical treatments and prescription drugs. Medical doctors are also
accelerating the process of acceptance, as doctors trained in the western
tradition in Europe, the United States and elsewhere are integrating TCM and
alternative treatments in their everyday practice. Additionally, a
growing number of physicians specifically trained in TCM, acupuncture and other
modalities are opening offices in communities in the U.S. and around the
world.

We
believe that the sales of TCM in China reflect the central and still growing
role these therapies play in medical care in that nation. According
to Helmut Kaiser Consultancy, in 2005, total sales revenue for Chinese herbal
medicine manufactured in China was $13.6 billion which accounted for 25.8% of
all medicine manufactured in China. This segment had total profit of
$1.76 billion which accounted for 29% of the total profit of the Chinese drug
industry. In 2006, there were approximately 1,400 Chinese herbal
medicine manufacturers with an annual growth rate of 15%, much higher than the
comparable period GDP growth. According to Helmut Kaiser Consultancy,
as a result of the increasing wealth of China and an aging population, it is
estimated that by 2010, China will be the fifth largest market for herbal
medicines in the world exceeding more than $24 billion in sales.

According
to a published report by PricewaterhouseCoopers, in 2009 China had more than
7,000 distributors supplying pharmaceuticals to hospitals and
pharmacies. According to such report, most Chinese seeking medical
care go directly to the hospitals where more than 80% of the medicines used
throughout China are prescribed. Only recently have chain drug stores
begun to appear allowing drugs to be obtained in many areas without a visit to a
hospital.

Our
Products

Overview

We
obtained Drug Approval Numbers for 29 varieties of traditional Chinese herbal
medicines in 2004 and currently produces 10 TCM pharmaceutical products, all
derived from herbal and organic sources. These include both
prescription and non-prescription over-the-counter (OTC)
medicines. The first five-year valid terms of such Drug
Approval Numbers have expired. We submitted the applications for
re-registration on June 29, 2007 which were accepted by SFDA. We have
been advised that the approval processes for these drugs has been recently
commenced by the Shandong Branch of SFDA. During the renewal period,
we are permitted to continue manufacturing these drugs as if the renewals had
been approved.

The
following is a list of approved pharmaceutical products that we are producing
with their intended uses:

Lung Nourishing
Cream. Lung Nourishing Cream is designed to moisten the lung
and relieve coughs and can be used to treat weak lung and chest tightness, poor
chronic cough, shortness of spontaneous breath and chronic
bronchitis.

44

Tongbi
Capsules. This product is designed to promote blood
circulation and relieve swelling and pain, and can be used to treat cold
resistance, liver and kidney deficiency, arthralgia syndrome and rheumatoid
arthritis.

Tongbi
Tablets. Tongbi Tablets are designed to regulate and fortify
the blood promote blood circulation and relieve swelling pain and can be used to
treat alpine resistance, liver and kidney deficiency, including rheumatoid
arthritis.

Shangtongning
Tablets. This product is designed to alleviate pain and can be
used to treat bruises.

Zhuangyuan shenhailong Medicinal
Wine. This liquid product is designed to promote kidney
function and can be used to treat the weakness waist and knee fatigue, insomnia
and forgetfulness.

Danqi Tablet. This
product is designed to improve blood circulation and can be used to treat blood
stasis, cardio-thoracic pain, dizziness and headache, and menstrual
pain.

Fukangning
Tablet. This product is designed to improve blood circulation
and can be used to treat blood stasis, cardio-thoracic pain, dizziness, headache
and menstrual pain.

Bazhen Yimu
Cream. This product is designed for menstruation conditioning
and can be used to treat dizziness, palpitation, fatigue, weakness and other
menstrual symptoms and can also be used to ease menstrual flow.

Huoxue Shujin
Ting. This product is designed to promote blood circulation
and relieve blood congestion, and can be used to treat pain in the waist and
leg, numbness in the feet and hands and arthritis.

Anti-flu
Granules. This product is designed to detoxify the body, and
can be used to treat cold caused by exogenous wind-heat with symptoms such as
fever, headache, stuffy nose, sneezing, pharyngodynia, generalized weakness and
soreness.

Of our 10
products, currently 5 (Tongbi Tablets, Tongbi Capsules, Shangtongning Tablets,
Danqi Tablets and Huoxue Shunjin Ting) are available only through
prescription.

In
addition to the 10 medicines currently in production, we hold the rights to
produce 19 other herb-based pharmaceutical formulations. We
anticipate that we will commence the manufacturing and distribution for these
additional products if and when appropriate business conditions
develop.

Product
Types

Bohai has
five production lines for the manufacturing of medicines in five forms,
including tablets, granules, capsules, syrup, and medicinal wine. In
our fiscal year June 30, 2009, we produced:

·

1.35
billion tablets and capsules;

·

30
million bags granules (370 million
granules);

·

15
million bottles/units of concentrated
decoctions;

·

10
million bottles/units of syrup;

45

·

1
million bottles/units of tinctures;
and

·

1
million bottles/units medical wine

One of
our pharmaceutical products have been granted “protected” status by the PRC
government, a marketplace classification used by the government to regulate both
production and distribution of traditional and herbal
medicines. These “protected” medicines are not patented in the
traditional commercial sense but are essentially proprietary. The
protection refers, in part, to standardizations of formulae which require that
medicines of the same name have the same type and proportion of
ingredients. The “protected” designation grants us exclusive
manufacturing and distribution rights within China over certain protected
products or with up to six manufacturers in other cases.

We have
the exclusive rights to manufacture Tongbi Capsules and we share manufacturing
rights with one or more manufacturers for Shangtongning Tablets and Anti-flu
Granules. The exclusive rights usually have a term of seven years and
can be extended for another seven year period after the initial seven year
period elapses. The protection periods for both Tongbi Capsules and
Shangtongning Tablets expired in September 2009 and we have filed an application
for extending the protection period on March 12, 2009 for Tongbi Capsules. We
have decided not to submit extension application of Shangtongning Tablets,
because the SFDA shall not approve Certificate of Protection for Shangtongning
Tablets or any other products that are currently produced by more than three
manufacturers in China according to applicable Chinese SFDA
regulations. The shared manufacturing rights for Anti-flu Granules
expire on July 9, 2012.

During
2010, we expect to increase marketing and advertising of Tongbi Capsules and
Tablets, which are formulated to treat various forms of
arthritis. Sales of our Tongbi medicines are expected to grow in
2010. In addition to the Tongbi medicines and the Lung Nourishing
Cream, other substantial contributors to our revenues include its Shangtongning
Tablets which are also expected to grow in 2010. Sales of our OTC
product Bazhen Yimu Cream, used to strengthen the immune system, the enhancement
of physical strength and conditioning, are also projected to grow in
2010.

We price
our medicines well under government-mandated caps and at a premium to most
competitors because we use high quality raw materials and rely on strict quality
control and management to produce high quality finished products. We
therefore believe, subject to applicable clinical analysis, that the purity,
potency and effectiveness of our ingredients are superior to similar products in
the Chinese marketplace.

Overview
of the Chinese Market

The
People’s Republic of China is undergoing the world’s most important and powerful
economic transformation. This transformation includes the confluence of
its ancient culture with modern trends in business, technology and
finance. As a result, Chinese operating companies are capitalizing on
unmatched growth opportunities in this evolving and growing
marketplace. Although average income is approximately one-tenth that
of developed western nations, business growth and market reform-driven policies
have given the country’s 1.3 billion citizens more purchasing power than
ever.

46

According
to a report published in Newsweek, total consumer spending in China reached $1.7
trillion in 2007, compared with $12 trillion in the U.S. In its China
Consumer Survey published in January 2010, Credit Suisse found that household
income in China of the bottom 20% of those surveyed rose by 50% since 2004,
while the top 10% had grown 255% to around RMB34,000 per
month. Credit Suisse expects China’s share of global consumption to
increase from 5.2% at US$1.72 trillion in 2009 to 23.1% at US$15.94 trillion in
2020, overtaking the U.S. as the largest consumer market in the world.Further,
research on Chinese consumers by management consulting firm McKinsey classifies
two million households out of a population of 1.3 billion as “wealthy,” based on
fairly modest annual earnings of more than $30,000. An enormous
middle class is rising, however, numbering some 70 million urban households, but
these still earn $5,000-$10,000 a year. China’s National Bureau of
Statistics, based on a random survey of 65,000 urban households in China, found
that the average (annual) disposable income of urban residents in the first half
of 2009 was U.S. $1,300, an increase of 9.8% compared to the same period last
year. When price factors are deducted, this is equivalent to a real
increase of 11.2%. The average consumption expenditure amount of
urban residents in the first half of 2009 was U.S. $876, an increase of 8.9%
compared to the same period last year. When price factors are deducted, this is
equal to a real increase of 10.3%.

TCM
Industry Drivers

We
believe that demographic, governmental and related factors in the China will be
favorable to growth and expansion of our business.

Growing Prosperity of the Chinese
People. The increased spending power of China’s population
continues to be reflected in the increased consumption of health products and
medical services between 2007 and 2010. According to Euromonitor
data, spending by Chinese people on these goods and services will increase from
$100 billion in 2007 to $145 billion in 2010.

Population
and Aging

·

The
total population of China was 1.32 billion at the end of 2007, according
to official government estimates.

·

Due
to improved healthcare, the elderly population of China is
growing.

·

The
health/medical costs associated with care for elderly in China are
approximately five (5x) times that of younger
people.

·

China
had 170 million elderly people in 2007 but will have an expected 230
million elderly by 2015 according to “Consumer Lifestyles in China:
Consumer Trends, China’s Grey Population,” by Euromonitor,
2009.

·

The
proportion of the China’s population aged 65 and over will rise from just
10% of the overall population in 1995 to 22% by 2030, according to the
World Bank.

·

From
1995 to 2030 it is estimated that the ratio of working-age people to
pensioners will decrease from 9.7:1 to 4.2:1. China’s national
estimates vary slightly from World Bank figures, but still show in
increase in the proportion of the population over 65 years from 7% in 2000
to 9.4% in 2007, according to China Country Profile 2009, The Economist
Intelligence Unit Ltd.

Government Policies in Health Care
and TCM. In April of 2009 the PRC government implemented a new
national medical and health plan. Among other features, this new plan
extended national medical insurance coverage to China’s rural areas, where the
bulk of the population resides. This expanded coverage will
eventually encompass virtually all of China’s 1.3 billion citizens, greatly
expanding the market for TCM pharmaceuticals, as well as other health care
products and services. This has led to massive potential for
increased sales growth for Bohai and other providers of TCM pharmaceutical
products.

47

According
to Espicom Business Intelligence, in the next three years, the PRC government’s
health care investment will rise to $125 billion, compared with $96 billion for
2008. Direct health care subsidies of urban and rural residents will
amount to $57 billion. China’s health care investment is expected to
witness a growth of 19.7% and the overall growth rate will reach more than
25%.

Government Support of Traditional
Chinese Medicine. Among its public health initiatives, the
Chinese government officially supports use of TCM to enhance wellness and to
treat chronic and acute diseases. The government has also commenced a program to
evaluate TCM and herbal-based pharmaceuticals for coverage and reimbursement
under national medical insurance. In 2002, TCM was declared a
“national strategic industry” in the government’s “Development Outline of
Traditional Chinese Medicine Modernization (2002 – 2010).”

Decreased
Competition. According to the Information Office of the State
Council of the PRC, prior to 2009, there were approximately 6,000 Chinese
pharmaceutical manufacturers. That number is being significantly
reduced through both marketplace attrition and direct government involvement,
decreasing competition and increasing potential sales opportunities for the
surviving companies. Other companies are expected to fail through
lack of size and innovative and aggressive management. According to a
2009 report published by KMPG, of the approximately 4,500 pharmaceutical
companies in China, the majority are small players with limited local market
reach, and rapid consolidation between medium and large players in the sector is
anticipated since the Chinese government has been encouraging industry
consolidation with an effort to improve the Good Manufacturing Practice (GMP)
standard, enforce GMP certification and to better control the pricing of
drugs..

Growth
Strategy

Our
strategic initiatives for the foreseeable future are designed to aggressively
capitalize on the health and wellness needs of increasingly wealthy and
empowered consumer class in China. In particular, we are seeking to
capitalize on the government policies that extended medical insurance in 2009 to
hundreds of millions of Chinese citizens living in rural areas, representing a
vast untapped market of potential consumers who previously lacked access to
national medical insurance. As part of its reforms to expand and
improve public health and medical care, the PRC government is promoting the use
of herbal-based TCM and expanding insurance coverage to 100% of an increasing
number of medicines.

Our
strategic initiatives include the following:

Grow Hospital
Presence. We have targeted 600 hospitals in 100 locations
throughout China for direct marketing of Bohai products. As part of
this initiative, our sales team will expand its marketing activities to educate
hospital personnel about the our product lines and train hospital employees in
the preventative and curative qualities of these products. The
initial focus will capitalize on the best known and most popular of our
products, such as Tongbi capsules and Shangtongning tablets, using these as
door-openers for our other medicines.

The
average cost to “open” each hospital to our products is $1,500 with the
following provinces targeted:

48

Cities

Number of Hospitals

Zhejiang

100

Jiangsu

80

Anhui

150

Shandong

200

Sichuan

20

Hubei

100

Build Awareness of the Lung
Nourishing Cream. We have allocated a significant portion of
the proceeds from our January 2010 private placement for
brand-building. We will primarily target consumers through television
and print advertising to expand awareness of the uses and effectiveness of our
Lung Nourishing Cream. The advertising will incorporate messaging
targeting smokers and workers with occupational diseases as well as city
dwellers exposed to smog. It is expected that the consumer television
advertising program will initially be focused in the following areas:

TV Station Location

Shandong

Anhui

Hubei

Sichuan

Chongqing

Shanxi

Jiangsu

Liaoning

Expand to Rural
Areas. We expect to execute a comprehensive marketing campaign
targeting 100 rural counties as a result of the national government’s emphasis
on expansion of healthcare and health insurance into the country’s rural
areas. We plan on starting its rural marketing in Shandong, Anhui,
Liaoning and Hubei. Our sales team will market its products to
pharmacies, hospitals, physicians, herbal medicine experts, media outlets and
other opinion leaders in these rural areas. The main purpose is to be
listed in the New Rural Cooperative Medical Directory which is farmer-friendly
and assists these rural dwellers with reimbursement of medical
expenses.

Generally,
the cost of this professional relationship-building with each rural county is
$3,000 with a listing fee in the New Rural Cooperative Medical Directory costing
in excess of $1,000,000. We planned to hire 80 sales people for this
effort and to equip each with a minivan to enable in-person
contacts. Each employee will be responsible for 5
counties. 30 sales people for this effort have been hired as of the
date of this prospectus. All of these sales and marketing initiatives
will involve both OTC and prescribed products.

49

Build Product Line and Product
Awareness. Brand awareness marketing will include the
promotion and introduction to new markets of the current popular Bohai products
such as Tongbi Tablets, Lung Nourishing Cream and Champion Sea Dragon Wine
Medicine. As part of its increase in sales and marketing staff, we
plan to have special trainers and presenters who can conduct promotional events
and seminars to increase awareness of our products.

Seek Acquisitions of Complimentary
Companies or Assets. We believe that there may be TCM
companies or assets in China that would be complimentary with our current
product offerings and which could fit well with our sales and marketing
platform. We may seek to acquire such assets or companies as a means
to grow our revenue and profitability.

Competitive
Advantages

We
believe there are several key factors that will continue to differentiate us
from our competition in the PRC:

·

“Protected” Status of Bohai
Products. One of our 10 products currently enjoys
protected status by the PRC government. We have submitted an
application for extending the protection period for this
product. This status regulates competition, granting us
exclusive or near-exclusive rights to manufacture and sell the protected
products.

·

Insurance Coverage for Lead
Bohai Products. Two of our lead products, Lung
Nourishing Cream and Tongbi Capsules and Tablets, are listed in the
Catalogue Eligible for Medicine Reimbursement as of December 1,
2009. This means that these medicines are eligible for
reimbursement under the national health insurance.

·

Relatively
low research and development (including acquisition) costs of TCM,
compared with western pharmaceutical companies.

·

Highly
trained sales force of approximately 300 people as of August 2010.

Raw
Materials and Suppliers

The
principal raw materials used for the production of our distributed products are
honey, laiyang pear paste, Sichuan fritillaria, pangolin, and Chinese
angelica. Raw materials, as well as packaging materials, are sourced
from various independent suppliers in the PRC. We have no long term
agreements with our suppliers, and purchase raw materials on a purchase order
basis. We try to maintain relationships with at least two vendors for
each major raw material in order to ensure a reliable supply of raw materials at
reasonable prices. We believe there is ample supply in the market for
the foreseeable future of the ingredients for our products. Our
principal suppliers include Anhui Dechang Pharmaceutical Tablet Co., Ltd.,
Shandong Yantai Medical Materials Purchasing and Supply Station, Zibo Taibao
Forgery-proof Product Co., Ltd., and Zhejiang Yuhuan Kangning Medicine Packaging
CO., Ltd. In the fiscal year ended June 30, 2009, one supplier
accounted for over 10% of our purchases of raw materials, although currently no
single supplier accounts for over 10% of our purchases of raw
materials. Approximately 30% of the raw material is purchased from
Anhui Dechang Pharmaceutical Tablet Co., Ltd., Shandong Yantai Medical Materials
Purchasing and Supply Station and Shandong Cangli Medicine Co.,
Ltd.

50

Research
and Development

We
currently have limited resources to devote to and limited capabilities to
conduct the development of new products; and as such research and development
activities are not presently material to our business. We have only
one full-time employee who is engaged in research and development, so we mainly
dependent on a third-party, Yantai Tianzheng Medicine Research and Development
Co., Ltd., to perform research and development for us. We currently
have two products, namely Forsythia Capsule and Fern Injection, under research
and development in association with Yantai Tianzheng Medicine Research and
Development Co., Ltd.

We, like
other TCM manufacturers, enjoy relatively low research and development expenses
as most TCM medicines are based on standardized formula. In 2008,
SFDA promulgated a notice of registration of Chinese traditional medicine
providing that TCM composed of classic prescriptions shall be exempted from
pharmacological and toxicological tests and studies. The notice
defined classic prescription and classic TCM formulas as those herbal remedies
recorded in ancient Chinese medicine books from Qing Dynasty or earlier which
are currently widely used. According to such notice, the production
and manufacturing of TCM products are subject to non-clinical safety studies
only and exempted from pharmacological and toxicological tests and
studies. Thus, TCM products are entitled to obtain faster SFDA
approval. As such, we enjoy relatively low research and development
expenses because most of our products are based on classic TCM formulas that are
covered by this notice.

The
research and development process includes toxicological tests, pharmalogical and
qualitative research, preparation for production and other miscellaneous
costs. We intend to introduce one new product by 2014 which is
currently identified as a Shujin Pain Relief soft capsule. The total
cost to develop this product is not expected to exceed $150,000. We
may also seek to acquire new products through acquisitions of other TCM
companies in the future.

Manufacturing

Although
TCM is thousands of years old, we believe that our product manufacturing and
procedures are the most modern and up-to-date available. We employ
rigorous standards for product quality control and safety. The
manufacturing facility owned by us is conducted in the city of Yantai in
Shandong Province in a state-of-the-art 18,000 square-meter facility that meets
or exceeds the latest Good Manufacturing and Quality Management Practice
standards (referred to in China as “GMP”).

GMP
standards are the government’s benchmark for pharmaceutical manufacturers in
China and must be met for the manufacturer to be eligible to market domestically
or enter world markets. On March 31, 2009, we completed a GMP review
which included examination of 225 items including development technology,
production, quality assurance, quality control, material handling and
engineering. As a result of that review, we were been re-certified
for a new five-year period.

Through
stringent application of GMP standards, the PRC government has reduced the
number of marginal medicine manufacturers by one-third, from 6,000 to
4,000. It is expected that TCM and pharmaceutical companies such as
ours that have received full GMP approval by the government will enjoy the
competitive benefits of their strict adherence to quality control, safety,
health and manufacturing standards.

Our
advanced and mechanized facilities utilize controlled, clean-room procedures
with sophisticated water filtration and materials processing
systems. In our annual operations, we process 800 tons of herbal
plants to extract, isolate and purify the compounds used in its medicines and
health supplements.The
manufacturing staff consists of approximately 200 production employees and
approximately 20 quality control inspectors as of August 2010.

51

Marketing,
Sales and Distribution

Bohai’s
products are sold either by prescription through hospitals or Over The Counter
(OTC) through local pharmacies and retail drug store chains. Sales and
distribution are managed and executed by approximately 300 sales representatives
located in 20 offices throughout China as of August 2010. These
employees are trained in all details of each product and are encouraged to
develop strong ties with physicians, hospitals and pharmacies in their local
areas.

Our
distribution and marketing initiatives for the next several years will be
focused on achieving the following goals:

Expand hospital
presence. We intend to further develop business in 600
hospitals in provinces we already serve including Shandong, Zhejiang, Jiangsu,
Anhui, Sichuan and Hubei. We believe that we will generate additional
revenue from the newly developed hospitals in those provinces.

Expand distribution to the rural
market. We believe that the Chinese government’s expansion in
2009 of national medical insurance coverage to the rural population provides us
with new and largely untapped markets. Some of our products, namely
Lung Nourishing Cream, Tongbi Capsules, Tongbi Tablets and Bazhen Yimu Cream
have been listed in government’s New National Medical Insurance Catalogue in
Shandong and Anhui Province as of November 30, 2009, and we expect to gain a
competitive advantage in these newly accessible rural markets.

During
2010, we plan to develop relationships with 100 new county-level hospitals in
rural areas of Shandong, Anhui, Liaoning and Hubei to establish its primary
marketing and distribution network in these rural areas.

Expand prescription medicine sales
organization. A key element of our growth strategy is
increased outreach to physicians. These outreach programs will focus
on the five current pharmaceutical products of ours that are available by
prescription only and will typically take place at state-run hospitals where
virtually all Chinese citizens obtain their medical care. Our
educational training programs will be designed to inform doctors of the range of
our pharmaceutical products including diseases or health/wellness concerns
targeted and proper usage of the medicines. Management will allocate
a portion of the proceeds derived from our January 2010 private placement to
expand existing physician-education programs.

China’s
domestic pharmaceutical industry is highly competitive, with hundreds of
companies vying to reach consumers through more than 100,000 pharmacies.
In some categories in which we compete there are many other companies
offering the same competitive products. The market continues to attract
new entrants because the per capita medicine consumption in China is still low,
compared to developed countries, and that shows promise for substantial
growth.

52

Competitive
factors primarily include price and quality. We believe that we are able to
effectively compete in our market segment in China based upon the quality of our
product, given our new GMP certified manufacturing facility and our reputation
in the market place.

Many of
our current and potential competitors have significantly longer operating
histories and significantly greater managerial, financial, marketing, technical
and other competitive resources, as well as greater name recognition, than we
do. These competitors may be able to respond more quickly to new or changing
opportunities and customer requirements and may be able to undertake more
extensive promotional activities, offer more attractive terms to customers or
adopt more aggressive pricing policies. We cannot assure you that we will be
able to compete effectively with current or future competitors or that the
competitive pressures we face will not harm our business.

I
ntellectual Property

We market
our products under the trademark “Xian Ge” which is registered with the PRC
Trademark Bureau under the State Administration for Industry and
Commerce. Currently, another company is licensed to utilize our
registered trademark “Xian Ge”. We have received a patent in the PRC
for our Lung Nourishing Cream with its production method for the treatment of
Lung-qi Deficiency Cough and Chronic Bronchitis.

Government
Regulation

We are
subject to many general regulations governing business entities and their
behavior in China and in any other jurisdiction in which we have operations. In
particular, we are subject to laws and regulations covering food, dietary
supplements and pharmaceutical products. Such regulations typically
deal with licensing, approvals and permits. Any change in product
licensing may make our products more or less available on the
market. Such changes may have a positive or negative impact on the
sale of our products and may directly impact the associated costs in compliance
and our operational and financial viability.

Our only
sales market is presently in China. We are subject to the
Pharmaceutical Administrative Law, which governs the licensing, manufacturing,
marketing and distribution of pharmaceutical products in China and sets
penalties for violations of the law. We are also subject to the Food
Sanitation Law, which provides for the food sanitation standards to be
followed.

Under
SFDA guidelines for licensing of pharmaceutical products, all pharmaceutical
manufacturers must obtain and maintain GMP Certificate. We hold a GMP
Certificate (No. Lu K0587) issued by Shandong Branch of SFDA on June 18,
2009. Because our manufacturing facility has obtained the National
GMP Certificate, we are authorized to produce products in seven modes which
are tablets, capsules, granules, syrup, concentrated decoctions, tincture and
medical wine. Such certificate expires on June, 14,
2014.

We hold a
Permit for the Production of Medicine (Lu Zb20050330) issued by Shandong Branch
of SFDA on January 1, 2006 which allows us to engage in the production of
tablets, capsules, granules, syrup, concentrated decoctions, tincture (for oral
use) and medical wine. Such permit expires on December 31, 2010 and
we are planning to submit renewal application in compliance with the
requirements of the Shandong Branch of SFDA.

The
Permit for the Production of Medicine and GMP certificates are each valid for a
term of five years and must be renewed before their expiration.

53

We
obtained a Drug Approval Number for each of our products in 2004. The first five
year valid terms of such Drug Approval Numbers have expired. We
submitted the applications for re-registration on June 29, 2007 which were
accepted by SFDA. We have been advised that the approval processes
for these drugs have been recently commenced by the Shandong Branch of
SFDA. During the renewal period, we are permitted to continue
manufacturing these drugs as if the renewals had been approved.

The
governmental approval process in China’s newly developed health product is as
follows: a product sample is sent to a clinical testing agent designated by the
Ministry of Health, which conducts extensive clinical testing and examinations
to verify if the product has the specified functions as stated by the company
producing the product. A report will be issued by the clinical
testing agent confirming or negating such functions. It generally takes
approximately six months to one year for the report to be
issued. This report then has to be submitted to a provincial Health
Management Commission for approval. A letter of approval issued by such
commission will then be submitted to the Ministry of Health for the issuance of
a certificate that authorizes the sales and marketing of the product in China.
The whole process generally takes one and a half to two years.

Because
our subsidiary Yantai Shencaojishi Pharmaceuticals Co., Ltd. is a wholly foreign
owned enterprise, we are subject to the law on foreign investment enterprises in
China, and the foreign company provisions of the Company Law of China, which
governs the conduct of our subsidiary and its officers and directors.
Additionally, we are also subject to varying degrees of regulations and permit
system by the Chinese government.

Currently
we have not developed a market in U.S. so we believe we are not subject to any
of regulations by the U.S. Food and Drug Administration.

Environment
Regulation

We
believe we are in compliance with the Environmental Protection Law of the PRC,
as well as applicable local regulations, except that as of the date of this
Memorandum we are in the process of applying for the Pollution Discharge Permit.
Zhifu District Branch of Yantai Environment Protection Bureau issued a
written document on September 10, 2009, and stated that we have never been
subject to sanction due to violation of relevant environmental protection laws
since the incorporation. In addition to compliance with PRC laws and
local regulations, we consistently undertake active efforts to ensure the
environmental sustainability of our operations. Because the manufacturing
of herb and plant-based products does not generally cause significant damage or
pollution to the environment, the cost of complying with applicable
environmental laws is not material. In the event we fail to comply with
applicable laws, we may be subject to penalties.

Properties

Our
corporate headquarters is located at No. 9 Daxin Road, Zhifu District, Yantai,
Shandong Province, China. Under the current PRC laws, land is owned
by the state, and parcels of land in rural areas which is known as collective
land is owned by the rural collective economic organization. “Land
use rights” are granted to an individual or entity after payment of a land use
right fee is made to the applicable state or rural collective economic
organization. Land use rights allow the holder of the right to use the land for
a specified long-term period. We have a land use right, expiring in
2047, for a total of approximately 30,637 square meters of land, on which we
maintain our manufacturing facility. We currently have not obtained a
land use right certificate for a piece of land located in Xingfu Twelve Village
of Zhifu District with the area of 11,222 square meters, on which we maintain
our corporate headquarters. In the process of the planning of Yantai
City, the usage of the aforesaid land use right has been changed from
“industrial use” to “commercial use” and therefore, the approval process for the
land use right certificates on five relevant parcels of land including the land
occupied by us is suspended until the completion of the planning. We
can not assure you that we will eventually obtain the land use right certificate
for this land.

54

Employees

Substantially
all of our employees are located in China. As of August 1, 2010, we
had approximately 600 employees, including approximately 300 sales
representatives, operating from 20 offices throughout China. There
are no collective bargaining contracts covering any of our employees. We believe
our relationship with our employees is satisfactory.

We are
required to contribute a portion of our employees’ total salaries to the Chinese
government’s social insurance funds, including medical insurance, unemployment
insurance and job injuries insurance, and a housing assistance fund, in
accordance with relevant regulations. In the last three years, we
contributed approximately $62,930, $80,839 and $85,024 for the fiscal years
ended June 30, 2006, 2007 and 2008, respectively. We expect the amount of
contribution to the government’s social insurance funds to increase in the
future as we expand its workforce and operations.

January
2010 Share Exchange and Private Placement Transaction

We were
originally incorporated under the laws of the State of Nevada under the name
Link Resources Inc. on January 9, 2008. Our principal office was in
Calgary, Alberta, Canada. Prior to January 5, 2010, we were a public
“shell” company in the exploration stage since our formation and had not yet
realized any revenues. We entered into a Mineral Lease Agreement on
April 1, 2008 for two mining claims in Pershing County, Nevada, in an area known
as the Goldbanks East Prospect. We terminated the lease on July 7,
2009.

Share
Exchange with Chance High

Pursuant
to the Share Exchange Agreement entered into on January 5, 2010, we acquired
Chance High and its indirect, controlled subsidiary Bohai, a Chinese company
engaged the production, manufacturing and distribution in China of herbal
medicines, including capsules and other products, based on Traditional Chinese
Medicine. On January 5, 2010, pursuant to the terms of the Share
Exchange Agreement, we acquired all of the Chance High Shares of Chance High
from the Chance High Shareholders, and the Chance High Shareholders transferred
and contributed all of their Chance High Shares to us. In exchange,
we issued to Chance High Shareholders an aggregate of 13,162,500 newly issued
shares of our common stock. Certain of the Chance High Shareholders
are selling stockholders hereunder.

In
addition, pursuant to the terms of the Share Exchange Agreement, Zaradic, our
former sole officer and director, cancelled a total of 1,500,000 shares of
common stock owned by him. As a further condition of the Share
Exchange, effective as of January 5, 2010, Zaradic resigned from all of his
positions with our company and Qu, the former principal stockholder and
Executive Director of Bohai, was appointed as our President, Chief Executive
Officer, Interim Chief Financial Officer, Treasurer and Secretary and also,
effective January 16, 2010, as our sole director. In June 2010, Mr.
Qu relinquished the positions of Interim Chief Financial Officer, Treasurer and
Secretary and we appointed Gene Hsiao as our Chief Financial
Officer. On July 12, 2010, we appointed three independent directors
to our board of directors.

55

Private
Placement and Related Agreements

Securities Purchase
Agreement. On January 5, 2010, we entered into the Securities
Purchase with the Investors and Euro Pacific, as representative of the
Investors, relating to a private placement by us of 6,000,000 units consisting
of Notes and Warrants. The consummation of the private placement
resulted in gross proceeds to us of $12,000,000 and net proceeds of
approximately $9,700,000. Each unit consisted of a $2.00 principal
amount, two year convertible Note and a three year Warrant to purchase one share
of our common stock at $2.40 per share, subject to certain
conditions. Euro Pacific acted as the lead placement agent and
Chardan Capital Markets, LLC acted as co-placement agent of the private
placement.

Pursuant to the Securities Purchase
Agreement, we have agreed that we shall:

(a) Within
six (6) months of the closing of the private placement, appoint individuals
constituting a majority of “independent” directors (as defined under the Nasdaq
Marketplace rules) to the our board of directors, with one such director being
designated by Euro Pacific, and with at least two of such directors being fluent
in English. As of the date of this prospectus, we have fulfilled this
agreement.

(b) Within
six (6) months of the closing of the private placement, enter into a 24 month
agreement with a new Chief Financial Officer who is reasonably satisfactory to
Euro Pacific and who is proficient in: (i) U.S. generally accepted accounting
principals; (ii) transactions similar to the ones contemplated by Securities
Purchase Agreement; and (iii) U.S. public company listings and the related
filing and compliance requirements. As of the date of this
prospectus, we have fulfilled this agreement .

(c) Within
three (3) months of the closing of the private placement, enter into a 12 month
agreement with an investor and public relations firm that is reasonably
satisfactory to Euro Pacific. As of the date of this prospectus, we
have fulfilled this agreement.

Registration Rights
Agreement. In connection with the private placement, we
entered into the Registration Rights Agreement with the Investors which sets
forth the rights of the Investors to have the shares of common stock underlying
the Notes and Warrants issued in the private placement registered with the SEC
for public resale. The filing of the registration statement of which
this prospectus is a part is intended to satisfy certain of our obligations the
Registration Rights Agreement.

Pursuant
to the Registration Rights Agreement, we agreed to file a registration statement
on Form S-1 (“Registration Statement”) by March 5, 2010 (which agreement was
fulfilled) and use our commercially reasonable best efforts to have the
Registration Statement declared effective by the SEC within 160 days after the
required filing deadline to register 100% of the common stock underlying: (i)
the Notes, (ii) the Warrants and the Private Placement Warrants, and (iii) any
capital stock of the Company issued or issuable, with respect to the registered
shares of common stock as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitations on exercises of the Warrants.

The
Registration Rights Agreement provides that if we fail to file, obtain and
maintain effectiveness of Registration Statement due to “filing failure” or
“maintenance failure” (each as defined in the Registration Rights Agreement), we
shall pay to Investors, distributed pro rata, equal to one percent (1%) of the
aggregate purchase price paid for the Notes and Warrants (the “Registration
Delay Payments”), provided that in no event shall the aggregate amount of
Registration Delay Payments exceed, in the aggregate, six percent (6%) of such
aggregate purchase price, or $720,000.

56

Securities Escrow
Agreement. Also in connection with the private placement, we
entered into the Securities Escrow Agreement with Euro Pacific, as
representative of the Investors, our principal stockholder, Glory Period, and
the Escrow Agent. Pursuant to the Securities Escrow Agreement, Glory
Period has pledged and deposited a stock certificate representing 1 million
shares of our common stock (the “Escrow Shares”) into escrow in order to provide
security to the Investors in the event of an occurrence of an event of default
under the Notes. Upon the earlier to occur of the full repayment of
all amounts due to the Investors under the Notes or the conversion of fifty
percent of the principal face value of Notes into shares of common stock, the
Investors’ rights in and to the Escrow Shares shall terminate. Glory
Period is controlled by Qu through certain contractual relationships described
elsewhere in this prospectus.

Closing Escrow Agreement.
Pursuant to the Closing Escrow Agreement that we entered into in
connection with the private placement on December 10, 2009, we placed a total of
$240,000 of proceeds from the private placement (the “Holdback Amount”) with the
Escrow Agent. The Holdback Amount represents an amount sufficient to
satisfy the payment to the Investors of one quarterly interest payment due on
the aggregate principal amount of all Notes issued in the private
placement. If, subject to certain conditions and after applicable
notice and cure periods, an event of default is declared by Euro Pacific with
respect to our failure to make a quarterly interest payment to Investors, the
Escrow Agent shall disburse such portion of the Holdback Amount to the
Investors, and we shall be obligated to deposit additional amounts equal to the
Holdback Amount with Escrow Agent. At such time as seventy-five
percent of the aggregate shares of common stock underlying the Notes have been
issued upon conversion of the Notes, all remaining funds of the Holdback Amount
shall promptly be disbursed to us.

Certain Rights of Euro
Pacific. From and after the closing of the private placement,
we have agreed with Euro Pacific that if we decide to engage any placement
agent, underwriter or investment bank on a fee basis in connection with any
private placement of our securities or our affiliates and executive officers (a
“Subsequent Offering”) for a period of twelve (12) months from the date of the
closing of the private placement, we shall give prompt written notice of such an
event to Euro Pacific, and Euro Pacific shall be entitled to a 5 day right of
first refusal, beginning on the day Euro Pacific receives such written notice
from us of such Subsequent Offering, to act as agent or manager for such private
placement. In addition, Euro Pacific shall be entitled 10.0% of the
gross proceeds received by us with respect to any equity or equity-linked
financing transactions consummated within twelve (12) months from the closing of
the private placement with any investor introduced to is by Euro
Pacific.

Contractual
Arrangements with Bohai and their Shareholders

On
January 9, 2008 our company was incorporated under the laws of the State of
Nevada under the name Link Resources Inc. On July 2, 2009, we established our
wholly owned subsidiary, Chance High International Limited., in Hong Kong. Other
than the Company equity interest in Chance High, the Company does not own any
assets or conduct any operations. On November 23, 2009, Chance High established
one wholly owned subsidiary, Yantai Shencaojishi Pharmaceuticals Co., Ltd.
(“WFOE” or “Shencaojishi”) in Yantai, Shandong Province of PRC. Other than
Shencaojishi, Chance High does not own any assets or conduct any operations.
Shencaojishi was formed to operate Yantai Bohai Pharmaceuticals Group, Inc. (the
“Domestic Company” or “Yantai Bohai”) by contract.

57

On
December 7, 2009, the WFOE entered into a series of variable interest entity
contractual agreements (the “VIE Agreements”) with Bohai and its three
shareholders, including Mr. Hongwei Qu, Jianwei Wang and Lu Liang (the “Bohai
Shareholders”). Pursuant to the VIE Agreements, WFOE effectively
assumed management of the business activities of Bohai and has the right to
appoint all executives and senior management and the members of the board of
directors of Bohai. The VIE Agreements are comprised of a series of
agreements, including a Consulting Services Agreement, Operating Agreement and
Proxy Agreement, through which WFOE has the right to advise, consult, manage and
operate Bohai for an annual fee in the amount of Bohai’s yearly net profits
after tax. Additionally, Bohai’s shareholders have pledged their
rights, titles and equity interest in Bohai as security for WFOE to collect
consulting and services fees provided to Bohai through an Equity Pledge
Agreement. In order to further reinforce WFOE’s rights to control and
operate Bohai, Bohai’s shareholders granted WFOE an exclusive right and option
to acquire all of their equity interests in Bohai through an Option
Agreement. Accordingly, we have consolidated Bohai’s historical
financial results in our financial statements as a variable interest entity
pursuant to U.S. GAAP following the date of the agreements and combined such
results prior to the date of the agreements.

We have
been advised by PRC legal counsel AllBright Law Offices, in an opinion dated
December 31, 2009, that: (1) our inner-PRC shareholding structure complies
with PRC laws and regulations; (2) the contractual arrangements between the
WFOE, Chance High, Bohai and Bohai’s shareholders are valid and binding on all
parties to these arrangements and do not violate relevant PRC laws or
regulations; (3) the each of the WFOE and Bohai has the requisite corporate
power to own, lease and operate its properties, to enter into contracts and to
conduct its business and (4) each of the WFOE and Bohai is qualified to do
business in the respective jurisdiction of its establishment.

Equity Interest Pledge Agreement.
The WFOE and Bohai Shareholders have entered into Equity Interest Pledge
Agreements, pursuant to which each shareholder pledges all of his shares of
Bohai to the WFOE in order to guarantee cash-flow payments under the applicable
Consulting Services Agreement. The Equity Pledge Agreement further entitles the
WFOE to collect dividends from Bohai during the term of the pledge.

Consulting Service Agreement.
Bohai and the WFOE has entered into a Consulting Services Agreement,
which provides that the WFOE will be the exclusive provider of technology
services to Bohai and Bohai will pay all of its net income based on the
quarterly financial statements to the WFOE for such services. Any
such payment from the WFOE to the Company would need to comply with applicable
Chinese laws affecting payments from Chinese companies to non-Chinese
companies. See “Risk Factors – Risks Associated With Doing Business
in China.”

Operating Agreement. Pursuant
to the operating agreement among the WFOE, Bohai and each of Bohai Shareholder,
the WFOE provides guidance and instructions on Bohai’s daily operations and
financial affairs. The Bohai Shareholders must designate the candidates
recommended by the WFOE as their representatives on their respective boards of
directors. The WFOE has the right to appoint senior executives of Bohai. In
addition, the WFOE agrees to guarantee Bohai’s performance under any agreements
or arrangements relating to Bohai’s business arrangements with any third party.
Bohai, in return, agrees to pledge its accounts receivable and all of its assets
to the WFOE. Moreover, Bohai agrees that without the prior consent of the WFOE,
Bohai will not engage in any transactions that could materially affect its
assets, liabilities, rights or operations, including, without limitation,
incurrence or assumption of any indebtedness, sale or purchase of any assets or
rights, incurrence of any encumbrance on any of its assets or intellectual
property rights in favor of a third party or transfer of any agreements relating
to its business operation to any third party.

58

MANAGEMENT

The
following table sets forth the name, age, and position of our directors, our
executive officers and key employees as of the date of this
prospectus. Executive officers are elected annually by our board of
directors. Each executive officer or key employee holds his office
until he resigns, is removed by the board of directors, or his successor is
elected and qualified, subject to applicable employment
agreements. We have a classified board of directors under which each
of our directors is designated as a part of one of three separate classes, with
the directors in one class being elected annually by our stockholders at our
annual meeting of stockholders for a term of three years. Each
director holds his office until his successor is elected and qualified or his
earlier resignation or removal. As used below, the term “Bohai” means
Yantai Bohai Pharmaceuticals Group Co., Ltd., a PRC company and our operating
subsidiary.

Name

Age

Position/Director Class

Hongwei
Qu

35

President,
Chief Executive Officer and Chairman of the Board of Directors (Class 1)

Gene
Hsiao

47

Chief
Financial Officer

Ning
Tang

50

Vice
President – Operations

Hongbin
Shan

41

Vice
President – Sales and Marketing

Chunhong
Jiang

45

Secretary
and Treasurer

Chengde
Wang

62

Director
(Class 1)

Louis
A. Bevilacqua, Esq.

41

Director
(Class 2)

Adam
Wasserman

46

Director
(Class 3)

Hongwei Qu. Mr. Qu
became our President, Chief Executive Officer, Interim Chief Financial Officer,
Treasurer and Secretary as of January 5, 2010, and, became the sole director and
Chairman of the our board of directors effective as of January 16, 2010 upon
filing of Schedule 14(f) with the SEC on January 6, 2010 in compliance with
Section 14(f) of the Exchange Act. Mr. Qu relinquished the positions
of Interim Chief Financial Officer, Secretary and Treasurer in June
2010. From 2001 to May 2007, Mr. Qu was the founder and principal
officer of Yantai Hangwei Medical Trading Co., a PRC company engaged in the
wholesale of drugs and medical products and retail of medical devices. In May
2007, Mr. Qu took principal responsibilities for the acquisition of
Bohai. From May 2007 until present, Mr. Qu has served as the General
Manger and Executive Director of Boha. . Mr. Qu has significant experience in
the medical and pharmaceutical sectors in China. Mr. Qu graduated
from Shandong Economic University with a bachelor degree.

Gene Hsiao. Mr.
Hsiao was appointed as our Chief Financial Officer in June 2010. Mr.
Hsiao has over 15 years of experience in corporate finance and
management. Prior to his appointment with us, Mr. Hsiao served as
Chief Financial Officer for China Advanced Construction Materials Group Inc.
(Nasdaq:CADC) from 2008 to 2010, where he was responsible for all U.S. affairs
as well as corporate finance functions in China. From 2000 to 2008,
he served as Controller of Milligan and Company, LLC, where he managed the
overall accounting and financial reporting functions as well as the company’s
internal control processes. From 1997 to 1999, he served as Finance
Manager for J&J Snack Foods Corporation (Nasdaq:JJSF), where he was
responsible for financial reporting and SEC schedule
preparation. From 1995 to 1997, he served as Accounting Supervisor of
RCN Corporation (Nasdaq:RCNI) and as the Senior Operation Analyst at ARAMARK
Corporation from 1992 to 1995. Mr. received his B.S. degree from
Drexel University in Philadelphia.

59

Ning Tang was appointed as
Bohai’s Vice President — Operations in November 2007 and our Vice President –
Operations in June 2010. Mr. Tang has over 25 years of experience in
management of pharmaceuticals companies in China. Prior to his
appointment with Bohai, Mr. Tang served as General Manager for Yantai Xiangyu
Environmental Protection Equipment Co., Ltd. from 2004 to 2007, where he was
responsible for all affairs of corporate operations in China. He
served as Vice President of Yantai Rongchang Pharmaceuticals Co., Ltd. from 1998
to 2004, where he managed the departments of operation, administration,
manufacturing and product quality. From 1986 to 1998, he served
as Deputy Director for Yantai TCM Pharmaceuticals Corporation, where he was
responsible for production, product quality, purchase, research and development
and sales. He received his B.S. degree in international trade and
business from Shandong Economic University.

Hongbin Shan was appointed as
Bohai’s General Manager of Sales in May 2010 and as the our Vice President –
Sales and Marketing as of June 2010. Mr. Shan has over 10 years of
experience in sales, marketing and management. Prior to his
appointment with us, from 1994 to 2010, Mr. Shan served as General Manager for
the Qingdao Branch, Shandong Province of Shandong Green Leaf Pharmaceutical Co.,
Ltd. and manager of the Su-Min Region (including Jiangsu, Fujian, Hubei, Jiangxi
and Anhui provinces) where he was responsible for all affairs of marketing and
sales. He also served in the capacity of Assistant Director of the
Oncology Division, responsible for the national market of Shandong Green Leaf’s
tumor line. He received his B.S. degree from Yantai University and
educational certificate from the senior MBA program of Tsinghua
University.

Chunhong Jiang was appointed
as Bohai’s General Manager of Finance, Secretary and Treasurer in May 2007 and
as our Secretary and Treasurer in June 2010. Ms. Jiang has over 20
years of experience in corporate finance, accounting and
management. Prior to her appointment with Bohai, Ms. Jiang served as
Financial Manager for Yantai Furao Trading Group from 2004 to
2007. She served as Financial Manager and department director for
Yantai Garment Company, a subsidiary of China Garment Group from 1994 to 2003,
where she was responsible for overall accounting and financial reporting
functions. She served as statistician, accountant and financial chief for Yantai
Hardware Factory from 1987 to 1993, where she managed the overall statistics,
accounting and financial reporting functions. She graduated from
Shandong Economic University.

Chengde Wang became an
independent director of our company on July 12, 2010. Mr. Wang has
served as the director medical doctor and Ph.D./MD advisor of Beijing Shuntiande
Chinese Medicine Hospital since October 2005, where he is responsible for
managing medical practice and research projects. Prior to joining
Beijing Shuntiande Chinese Medicine Hospital, Mr. Wang worked at Guang Anmen
Hospital under China Academy of Chinese Medical Science and was the professor
and the chief physician in the Beijing University of Chinese
Medicine. Mr. Wang is an expert in Traditional Chinese Medicine and
has been honored by the P.R.C. State Council. He is a member of
National Committee of The Chinese People’s Political Consultative Conference, a
director of Cooperation Center of State Administration of Traditional Chinese
Medicine with Taiwan, Hong Kong and Macao, director and Secretary-General of the
Center of Traditional Chinese Medicine Society and expert of review committee of
National Essential Drugs Association. Mr. Wang graduated from Beijing
University of Chinese Medicine.

Louis A. Bevilacqua, Esq.
became an independent director of our company on July 12, 2010. From
October 2008 to present, Mr. Bevilacqua has been a partner in the Corporate and
Securities Group at the law firm of Pillsbury Winthrop Shaw Pittman LLP and is
resident in the firm’s Washington, DC office. Prior to joining
Pillsbury, Mr. Bevilacqua was a partner in the Business and Finance Group at the
law firm of Thelen LLP during the period from January 2003 through October
2008. Mr. Bevilacqua has broad experience in public offerings and
private placements of securities, Exchange Act compliance, angel and venture
capital financings, other areas of equity and debt financing and mergers,
acquisitions and other business combinations, including “roll up” and “reverse
acquisition” transactions. Mr. Bevilacqua is a leader of Pillsbury’s
China Capital Markets practice and has significant experience representing
China-based middle market public companies. Mr. Bevilacqua obtained
his JD from Fordham University School of Law in 1994, where he became a member
of the Order of the Coif, and he obtained his undergraduate degree from Fordham
University, where he graduated with honors.

60

Adam Wasserman became an
independent director of our company on July 12, 2010. Mr. Wasserman
has served as the chief financial officer of Gold Horse International, Inc.
(OTCBB:GHII) since July 2007, chief financial officer of Emerald Acquisition
Corporation (PINK:PEAR) since June 2010 and as a director of China Direct
Industries, Inc. (NASDAQ:CDII) since January 2010. Since November
1999, Mr. Wasserman has been CEO of CFO Oncall, Inc., a Weston, Florida-based
provider of consulting and accounting services specializing in SEC reporting,
financial reporting, budgeting and planning, mergers and acquisitions, audit
preparation services, accounting department supervision ,and internal
controls. Mr. Wasserman has previously served as the chief financial
officer of Explorations Group Inc. (January 2002 until December 2005), Colmena
Corp. (May 2003 until June 2004), China Wind Systems, Inc. (November 2007 to
December 2008), Genesis Pharmaceuticals Enterprises, Inc. (October 2001 until
October 2007), and other companies, all client companies of CFO Oncall,
Inc. From June 1991 to November 1999, he was Senior Audit Manager at
American Express Tax and Business Services, in Fort Lauderdale, Florida where
his responsibilities included supervising, training and evaluating senior staff
members, work paper review, auditing, maintaining positive client relations,
preparation of tax returns and preparation of financial statements and the
related footnotes. From September 1986 to May 1991, he was employed by Deloitte
& Touche, LLP. During his employment, his significant assignments
included audits of public (SEC reporting) and private companies, tax preparation
and planning, management consulting, systems design, staff instruction, and
recruiting. Mr. Wasserman holds a Bachelor of Science in Accounting
from the State University of New York at Albany. He is a CPA (New
York) and a member of The American Institute of Certified Public Accountants and
is a director, treasurer and executive board member of Gold Coast Venture
Capital Association.

Audit,
Nominating, Compensation Committees and Director Independence

Although
our board of directors is comprised of a majority of “independent” directors (as
defined under the Nasdaq Marketplace rules), our board of directors presently
does not have standing audit, nominating or compensation committees and the
entire board is performing the functions normally associated with an audit,
nominating and compensation committee. We expect that we will seek to
form audit and other board committees in a manner consistent with
exchange-listed companies at such time as we apply for a listing on an exchange.

As part
of obligations under the Securities Purchase Agreement in connection with our
January 2010 private placement, one of our directors is designated by Euro
Pacific Capital, the lead placement agent for such private
placement. Louis A. Bevilacqua is the director designated by Euro
Pacific Capital.

During
our fiscal year ending June 30, 2010, we did not hold any meetings of the board
of directors, although our board of directors did act by unanimous written
consent.

61

EXECUTIVE
COMPENSATION

The
following table sets forth all cash compensation paid by Bohai, for the fiscal
years ended June 30, 2009 and 2008. The table below sets forth the positions and
compensations for each officer and director of Bohai during such
periods. All the officers were paid in RMB and the amounts reported
in this table have been converted from Renminbi to U.S. dollars based on the
June 30, 2009 conversion rate of RMB 6.8319 to $1.

COMPENSATION
SUMMARY TABLE

Nameand

Principal

Position

Fiscal Year

Salary

($)

Bonus

($)

Stock

Awards

($)

Option

Awards

($)

Non-Equity

Incentive Plan

Compensation

($)

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

($)

All Other

Compensation

($)

Total

($)

Hongwei
Qu,

2008

(1)

$

14,480.5

$

5,321.79

—

—

—

—

—

$

19,802.25

President
and

2009

(2)

$

14,644.5

$

4,910.78

$

19,555.28

Chief
Executive Officer

Option/SAR
Grants in Last Fiscal Year

We have
not granted any stock options to our executive officers or directors from
inception through the date hereof.

Director
Compensation

We do not
pay our directors any fees or other compensation for acting as directors. We
have not paid any fees or other compensation to any of our directors for acting
as directors to date.

Employment
Contracts

We
presently do not have any employment agreements or other compensation
arrangements with Mr. Qu.

62

CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

Reorganization
Related Transactions

Chance
High owns 100% of the issued and outstanding capital stock of WFOE, a wholly
foreign owned enterprise incorporated under the laws of the PRC. On
December 7, 2009, WFOE entered into the VIE Agreements with Bohai, a company
incorporated under the laws of the PRC, and its three shareholders which include
Mr. Qu (our President and Chief Executive Officer, who owns 90% of Bohai’s
shares) and two unaffiliated parties. Pursuant to the VIE Agreements,
WFOE does not directly own the equity of our operating subsidiary, but rather
assumed management of the business activities of Bohai and has the right to
appoint all executives and senior management and the members of the board of
directors of Bohai. The VIE Agreements are comprised of a series of
agreements, including a Consulting Services Agreement, Operating Agreement,
Proxy Agreement, Equity Pledge Agreement, and Option Agreement, through which
WFOE has the right to advise, consult, manage and operate Bohai for an annual
fee in the amount of Bohai’s yearly net profits after
tax. Additionally, Bohai’s shareholders have pledged their rights,
titles and equity interest in Bohai as security for WFOE to collect consulting
and services fees provided to Bohai through an Equity Pledge Agreement. In order
to further reinforce WFOE’s rights to control and operate Bohai, Bohai’s
shareholders have granted WFOE the exclusive right and option to acquire all of
their equity interests in Bohai through an Option Agreement.

Through
WFOE, Chance High operates and controls Bohai through the VIE Agreements. WFOE
used the contractual arrangements to acquire control of Bohai, instead of using
a complete acquisition of Bohai’s assets or equity to make Bohai a wholly-owned
subsidiary of WFOE because: (i) PRC laws governing share exchanges with foreign
entities, which became effective on September 8, 2006, make the consequences of
such acquisitions uncertain and (ii) other than by share exchange transactions,
PRC laws require Bohai to be acquired for cash and WFOE was not able to raise
sufficient funds to pay the full appraised value for Bohai’s assets or shares as
required under PRC laws.

Slow Walk Arrangements

On
December 7, 2009, Mr. Qu, who is a PRC citizen, entered into the Call Option
Agreement with Joshua Tan, a Singapore passport holder and the sole shareholder
of Glory Period. Under the Call Option Agreement, Mr. Qu shall have
right and option to acquire up to 100% shares of Glory Period for nominal
consideration within the next 3 years. The Call Option Agreement also
provides that Mr. Tan shall not dispose any of the shares of Glory Period
without Mr. Qu’s consent.

Guarantee for the loans with banks by
Mr. Qu

Mr. Qu,
our President, Chief Executive Officer and Chairman, is providing a guaranty for
Bohai’s loans with Pudong Development Bank Qingdao Branch in a total amount of
$2.2 million, or RMB 15 million.

Loans
to Mr. Qu

As of
September 30, 2009, Bohai extended a loan of $1,465,000 to Mr.
Qu. The loan was unsecured, interest bearing at 3.93% per annum and
has no fixed term of repayment. The loan was repaid on December 10,
2009.

63

Other

Other
than employment and the foregoing arrangements, none of the following persons
has any direct or indirect material interest in any transaction to which we are
a party since our incorporation or in any proposed transaction to which we are
proposed to be a party: (i) any of Bohai’s directors or officers; (ii) any
person who beneficially owns, directly or indirectly, shares carrying more than
10% of the voting rights attached to our common stock; or any relative or spouse
of any of the foregoing persons, or any relative of such spouse, who has the
same house as such person or who is a director or officer of any parent or
subsidiary of our company.

64

SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The
following table sets forth certain information regarding our common stock
beneficially owned as of the date of this prospectus for: (i) each stockholder
known to be the beneficial owner of 5% or more of our outstanding common stock,
(ii) each executive officer and director, and (iii) all executive officers and
directors as a group, on a pro forma basis, assuming none of the Notes have been
converted into common stock and none of the Warrants and Agent Warrants were
exercised as of such date. The information contained in the following
table is provided for disclosure purposes only as there can be no assurance that
the actual ownership will be as set forth therein based on the assumptions
used.

Name of Beneficial Owner

Shares of Common

Stock Owned

Percent of Class

Beneficially Owned (1)

Glory
Period Limited (2)(3)(4)

8,942,471

54.19

%

Hongwei
Qu (4)

8,942,471

54.19

%

Gene
Hsiao (5)

—

—

All
Executive Officers and Directors as a group

8,942,471

54.19

%

(1)

Based
on 16,500,000 shares of common stock issued and outstanding as of the date
of this prospectus.

(2)

Joshua
Tan is the sole shareholder of Glory Period, but pursuant to a Call Option
Agreement, he has no right to sell any shares without prior written
consent by Hongwei Qu.

(3)

Hongwei
Qu is the executive director of Glory
Period.

(4)

On
December 7, 2009, Mr. Qu, who is a PRC citizen, entered into the Call
Option Agreement with Mr. Tan, a Singapore passport holder and the sole
shareholder of Glory Period. Under the Call Option Agreement,
Mr. Qu shall have right and option to acquire up to 100% shares of Glory
Period for nominal consideration within the next 3 years. The
Call Option Agreement also provides that Mr. Tan shall not dispose any of
the shares of Glory Period without Mr. Qu’s
consent.

(5)

Mr.
Hsiao is our Chief Financial Officer. Pursuant to his
employment agreement with us, Mr. Hsiao is entitled to be granted up to an
aggregate of 120,000 shares of our common stock, vesting in three annual
installments of 40,000 beginning June 4, 2011, provided he is then
employed by our company.

65

DESCRIPTION
OF SECURITIES

Our
common stock was registered under the Securities Exchange Act of 1934, as
amended, pursuant to a Form 8-A (File Number 000-53401) that was filed with the
SEC on September 4, 2008.

Our
authorized capital consists of 150,000,000 shares of common stock and 10,000,000
shares of preferred stock, par value $01 per share. There are no
outstanding shares of preferred stock as of the date of this
prospectus. A majority of our then stockholders approved an amendment
to our Articles of Incorporation to increase our authorized shares of common
stock from 75,000,000 to 150,000,000, which amendment was filed with the
Secretary of State of Nevada on December 17, 2009.

As of the
date of this prospectus, we have 16,500,000 shares of common stock issued and
outstanding.

Description of Common
Stock. Our common stock is entitled to one vote per share on
all matters submitted to a vote of the stockholders, including the election of
directors. Except as otherwise required by law, the holders of common
stock will possess all voting power. Generally, all matters to be
voted on by stockholders must be approved by a majority (or, in the case of
election of directors, by a plurality) of the votes entitled to be cast by all
shares of common stock that are present in person or represented by
proxy. Holders of our common stock representing a majority of the
voting power of our capital stock issued, outstanding and entitled to vote,
represented in person or by proxy, are necessary to constitute a quorum at any
meeting of stockholders. Our Articles of Incorporation, as amended,
do not provide for cumulative voting in the election of
directors. Holders of common stock have no pre-emptive rights, no
conversion rights and there are no redemption provisions applicable to the
common stock.

Holders
of our common stock are entitled to share in all dividends that the board of
directors, in its discretion, declares from legally available funds. In the
event of a liquidation, dissolution or winding up, each outstanding share
entitles its holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock, if any,
having preference over the common stock.

Notes Issued in Connection with the
Private Placement. In connection with our January 2010 private
placement, we offered and sold $12,000,000 worth of Notes convertible into
6,000,000 shares of common stock (plus additional shares which may be issued
upon conversion of interest underlying the Notes).

The Notes
are unsecured, payable on January 5, 2012 and carry an interest rate of 8% per
annum payable quarterly in arrears. We have placed in escrow with the
Escrow Agent an amount of the proceeds of the private placement equal to one
quarter worth of interest payments on the Notes to secure prompt interest
payments, or $240,000. Until such time as 75% of the Notes are
converted into shares of common stock, if such escrow is depleted in order to
make interest payments, we will replenish such escrow amount.

At the
option of each holder, the Notes may be converted into common stock at a price
of $2.00 per share, which conversion price is subject to customary weighted
average and stock based anti-dilution protection.

66

The Notes
contains standard events of default, including: (i) failure to file the
Registration Statement with the SEC within the prescribed period; (ii) failure
to have the Registration Statement deemed effective by the SEC within the
prescribed period; (iii) failure to maintain the effectiveness of the
Registration Statement thereafter; (iv) nonpayment of principal or interest; (v)
termination of registration or suspension of reporting obligations under the
Securities Exchange Act of 1934, as amended, suspension from trading on the
OTCBB (or an exchange), or failure to file reports with the SEC on a timely
basis as required by the Securities Exchange Act of 1934, as amended; (vi)
material breach of representations, warranties and other obligations under the
transaction documents associated with the Securities Purchase Agreement; (vii)
enforcement proceedings; (viii) cross default and cross acceleration; (ix)
insolvency, winding up and other market standard analogous events; (x)
moratorium and nationalization; (xi) proceedings against us or our consolidated
subsidiaries with potential loss/damage of U.S.$5 million or more; and (xii)
illegality of Notes under any applicable law.

The Notes
also contain customary affirmative and negative covenants, including negative
covenants which restrict our ability to do the following without the consent of
Euro Pacific, as representative of the Investors: (i) incur, or permit to exist,
any indebtedness for borrowed money in excess of (A) US$10,000,000
during the twelve (12) month period beginning on January 5, 2010, or (B)
US$15,000,000 during period beginning on January 5, 2010 and ending on January
5, 2012 (the maturity date of the Notes), except in the ordinary course of our
business; (ii) lend or advance money, credit or property to or invest in (by
capital contribution, loan, purchase or otherwise) any person or entity in
excess of US$2,000,000except: (A) investments
in United States Government obligations, certificates of deposit of any banking
institution with combined capital and surplus of at least $200,000,000; (B)
accounts receivable arising out of sales in the ordinary course of business; and
(C) inter-company loans between and among us and our subsidiaries; (iii) pay
dividends or make any other distribution on shares of our capital stock; (iv)
create, assume or permit to exist, any lien on any of our property or assets now
owned or hereafter acquired, subject to existing liens and certain exceptions;
(v) assume guarantees, subject to certain exceptions; (vi) engage in
“sale-leaseback” transactions, subject to certain exceptions; (vii) make capital
expenditures in excess of US$5,000,000 in any fiscal year, subject to certain
exceptions; and (viii) materially alter our business.

Warrants. We
issued Warrants to purchase 6,000,000 shares of common stock in conjunction with
the private placement. Each Warrant entitles the holder to purchase
one share of common stock. The Warrants shall be exercisable in whole
or in part, at an initial exercise price per share of $2.40, which exercise
price is subject to customary weighted average and stock based anti-dilution
protection. The Warrants may be exercised at any time upon the
election of the holder, beginning on the date of issuance and ending of the
third anniversary of the closing of the private placement, or January 5,
2013. The Warrants are not redeemable.

In the
event of our liquidation, dissolution or winding up, the holders of Warrants
will not be entitled to participate in the distribution of our
assets. In addition, holders of Warrants do not have voting,
pre-emptive, subscription or other rights of stockholders in respect of the
Warrants, nor shall such holders be entitled to receive dividends.

Placement Agent
Warrants. In connection with the private placement, on January
5, 2010, we issued to affiliates of Euro Pacific and to Chardan Capital Markets,
LLC (“Chardan”) three-year Placement Agent Warrants to purchase 600,000 shares
of common stock at an exercise price of $2.40 per share. The
Placement Agent Warrants are substantially identical to the Warrants issued to
the Investors in the Private Placement, except that such warrants may not be
exercised until the six (6) month anniversary of the later of: (i) the date of
effectiveness of the registration statement of which this prospectus is a part
or (ii) the date of commencement of sales in connection with this offering
pursuant to separate lock-up agreements. The holders of the Placement
Agent Warrants are selling stockholders hereunder.

We are
registering for the resale shares of our common stock held by the selling
stockholders identified below. We are registering the shares to
permit the selling stockholders and their pledges, donees, transferees and other
successors-in-interest that receive their shares from a selling stockholder as a
gift, partnership distribution or other non-sale related transfer after the date
of this prospectus to resell the shares when and as they deem
appropriate.

The
following table presents information as of the date of this prospectus and sets
forth:

●

the
name of the selling stockholders;

●

the
number of shares of our common stock that may be offered for resale for
the account of the selling stockholder under this
prospectus;

●

the
number and percentage of shares of our common stock that the selling
stockholder beneficially owned prior to the offering for resale of the
shares under this prospectus; and

●

the
number and percentage of shares of our common stock to be beneficially
owned by the selling stockholder after the offering of the resale shares
(assuming all of the offered resale shares are sold by the selling
stockholders).

The
20,322,529 shares of our common stock registered for public resale pursuant to
this prospectus and listed under the column “Shares of Common Stock Included in
Prospectus” on the table set forth below consist of:

(i)

7,032,529
shares that were: (i) issued on January 5, 2010 in connection with the
Share Exchange or (ii) held by holders of “restricted” shares under
applicable law, in each case as described in the footnotes to the table
below;

(ii)

Up
to 12,690,000 shares issuable upon conversion or exercise of Notes
(including principal and, potentially, interest) and Warrants that were
issued in our January 2010 private placement; and

(iii)

600,000
shares issuable upon exercise of the Placement Agent
Warrants.

Euro
Pacific Capital, Inc. (“Euro Pacific”) and Chardan Capital Markets, LLC
(“Chardan”) were engaged by us to provide placement agent services in connection
with our Janaury 2010 private placement. In exchange for providing
these services, Euro Pacific and Chardan received an aggregate $1,200,000 in
cash commissions and an aggregate of three-year Placement Agent Warrants to
purchase 600,000 shares of common stock at exercise price of $2.40 per share, of
which 31,500 placement agent warrants were issued to Chardan and 568,500
placement agent warrants were issued to affiliates of Euro
Pacific. The Placement Agent Warrants are substantially identical to
the Warrants issued to the Investors in the private placement, except that such
warrants may not be exercised until the six (6) month anniversary of the later
of: (i) the date of effectiveness of the registration statement of which this
prospectus is a part or (ii) the date of commencement of sales in connection
with this offering pursuant to separate lock-up agreements. Euro
Pacific and Chardan received these securities to be resold in the ordinary
course of business and at the time of the issuance of the securities to be
resold, had no agreements or understandings, directly or indirectly, with any
person to distribute the securities.

68

The below
table assumes that all of the currently outstanding Warrants and Notes will be
exercised and converted for common stock and all of the securities will be sold
in this offering. However, any or all of the securities listed below
may be retained by any of the selling stockholders, and therefore, no accurate
forecast can be made as to the number of securities that will be held by the
selling stockholders upon termination of this offering. The selling
stockholders are not making any representation that any shares covered by this
prospectus will be offered for sale. We believe that, based on information
provided to us by each of the selling stockholders, the selling stockholders
listed in the table have sole voting and investment powers with respect to the
securities indicated. As indicated below, certain selling
stockholders are broker-dealers or affiliates of broker-dealers.